Unless you can buy a house entirely in cash, finding the right house is only half the battle. The other half is choosing the best type of home mortgage. Since you’ll likely be paying back your mortgage over a long period of time, it’s important to find a loan that meets your needs and your budget.
What Is a Conventional Loan?
A conventional mortgage or conventional loan is any type of home buyer’s loan that is not offered or secured by a government entity, but instead is available through or guaranteed by a private lender (banks, credit unions, mortgage companies) or the two government-sponsored enterprises, the Federal National Mortgage Association (Fannie Mae)and the Federal Home Loan Mortgage Corporation (Freddie Mac).
Conventional Loans have a minimum credit FICO of 580* along with a few other requirements. We offer down payments as low as 3%**(requirements vary based on occupancy type). This type of loan applies to owner occupancy, second homes and investment properties. Now, there are gifting funds that are allowed on owner occupied and second home properties. Mortgage insurance is required when the loan-to-value greater than 80%. Lastly, seller contributions of 2% to 9% depending on the loan-to-value and occupancy type.
What is an FHA Loan?
The Federal Housing Administration (FHA) is a U.S. agency offering mortgage insurance to FHA-approved lenders that meet specific qualifications. Mortgage insurance protects lenders against losses from mortgage defaults. If a borrower defaults on a loan, the FHA pays the lender a specified claim amount.
The primary goal of establishing the FHA is to stimulate the housing industry. The underlying idea was that by providing insurance to lenders, more individuals, or customers, would qualify for mortgages to buy homes. Most FHA Loans are for individuals who could not afford, and would not ordinarily qualify for, a traditional home mortgage loan.
Specifically, FHA Loans have a minimum credit FICO of 580 (620 for high balance loans and cash out refinances) along with a few other requirements. We offer down payments as low as 3.5%**(requirements vary based on occupancy type). This type of loan applies to owner occupied properties. Now, there are 100% gifting funds that are allowed for this type of loan. Upfront mortgage insurance premiums (UPMIP) financed monthly Mortgage Insurance required. Lastly, seller contributions are allowed up to 6%.
How about a VA Loan?
The Veterans Administration was formerly an independent government agency founded in 1930, at the height of the Great Depression. Commonly referred to as “the VA,” the organization provided patient care, veterans’ benefits, and other services to veterans of the U.S. armed forces and their families. It also provided this group with disability compensation for those who were injured or contracted a disease while serving, education and training, medical, surgical, and rehabilitative care, readjustment counseling, bereavement counseling, surviving spouse benefits, care and benefits to homeless veterans, medical research, life insurance, vocational rehabilitation, headstones/burial markers, and home loan assistance.
To be eligible for a VA-guaranteed home loan, veterans must have served on active duty in the Army, Navy, Air Force, Coast Guard or Marines. The specific service requirements will vary, depending on the time period during which a veteran served. A certificate of eligibility is required to obtain a VA loan, and the loan can be obtained through any mortgage lender who participates in the VA home loan program.
The VA-guaranteed home loan is one of very few 0% down payment loans available in the United States. A minimum FICO of 580 (620 for cash out refinance, 640 for high balance loans). Occupancy rules are for owner occupied, there’s 100%gift funds allowed, Upfront funding fee may be financed, there are no monthly Mortgage Insurance is required and seller concessions are up to 4%.
What is a USDA Home Loan?
Perhaps you feel more at home surrounded by pastures than pavement. If so, buying a home might be well within reach, thanks to the U.S. Department of Agriculture mortgage program. In fact, the USDA might have one of the government’s least-known mortgage assistance programs.
A USDA home loan is a zero down payment mortgage for eligible rural and suburban homebuyers. USDA loans are issued through the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, by the United States Department of Agriculture.
Specifically, FHA Loans have a minimum credit FICO of 620 along with a few other requirements. No down payment is required and applies to owner occupancy. Additionally, there are 100% gifting funds that are allowed for this type of loan. Upfront mortgage insurance fee may be financed and lastly, seller contributions are allowed up to 6%.
The Bottom Line
Choosing the loan that’s best for your situation relies primarily on your financial health: your income, credit history and score, employment, and financial goals. We can help analyze your finances to help determine the best loan products. Also, we can help you better understand the qualification requirements, which tend to be complex. A supportive lender or mortgage broker may also give you homework—targeted areas of your finances to improve—to put you in the strongest position possible to get a mortgage and buy a home.
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