FHA home loans are one of the most popular types of home loans used by first-time homebuyers. They have the lowest credit score requirements of any mortgage type.
Because of the low credit and down payment requirements they are loved by first time home buyers. First-time buyers have lower credit scores and less savings on average so FHA is the best type of home loan. Another great benefit of FHA home loans is that the down payment can be a gift from a family member or friend. There are also first-time homebuyer down payment assistance and grants you may be eligible for. You can check the HUD website to see programs in your state. One of the only downsides of FHA loans is the mortgage insurance premium (MIP). The FHA MIP fee typically 0.85% of the loan amount annually.
If you’re a Veteran then you may qualify for a VA home loan. VA loans offer a wealth of benefits to those who qualify, including zero down payment. On top of getting 100% financing, VA loans don’t require mortgage insurance. No PMI means huge savings, the average home owner saves about $2,000 per year on mortgage insurance.
The U.S. Department of Agriculture doesn’t just offer food and nutrition services. They now offer mortgages in rural areas of the country. USDA / RHS loans offer a no down payment mortgage and have low mortgage insurance fees. When you think of the word rural, farms and ranches are probably one of the first things that come to mind. However, the USDA eligibility map shows that over 95% of the U.S. is eligible. USDA home loans require a 640 credit score or higher to qualify.
Fixed-Rate Mortgages keep the same interest rate over the life of your loan, which means your monthly mortgage payment always stay the same. Fixed loans typically come in terms of 15, 20 or 30 years.
Unlike the stability of fixed-rate loans, adjustable-rate mortgages (ARMs) have fluctuating interest rates that can go up or down with market conditions. Many ARM products have a fixed interest rate for a few years before the loan resets to a variable interest rate for the remainder of the term. Look for an ARM that caps how much your interest rate or monthly mortgage rate can increase so you don’t wind up in financial trouble when the loan resets.
Conventional loans are known as conforming loans because they meet the guidelines of Fannie Mae and Freddie Mac. They are offered by private lenders and are not insured by the Federal Government. They still require mortgage insurance with a loan-to-value ratio above 80%. However, the PMI fee is usually lower than FHA loans, around 0.50% in most cases. Conventional loan requirements are more stringent than Government loans. They require a 620-640 credit score and down payment between 5% and 20%. One of the benefits of conventional loans is that mortgage insurance is not required if at least 20% is put down. PMI cancels once the LTV reaches 78%. Real estate investors will need to get a conventional mortgage because Government backed loans are for homeowners who intend to occupy the property as their primary residence only.
Conventional 97 Mortgage
A conventional 97 loan is similar to a regular conventional loan. However, it requires just a 3% down payment, hence the 97, standing for 97% loan-to-value. The 3% down payment is even lower than FHA loans which require 3.5% down. You can speak to your lender to see if they offer this program.
A non-conforming loan is a loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. The conforming loan limit is $484,350 in most areas of the U.S. and goes up to $726,525 in certain high cost areas of the country.
If you need a loan that exceeds the conventional loan limit in your area you will need to get a jumbo loan. Jumbo loans are more difficult to qualify for than conventional loans because of the higher loan amount. Most lenders will want you to have at least a 680-700 credit score. Jumbo loans also require a higher down payment, usually between 15%-20% is the minimum down payment required.
Super Jumbo Loans
Jumbo loans offer loan amounts up to around 1 million dollars. If you’re buying a home and need a loan for over 1 million you will most likely need what’s called a “super jumbo loan”. A super jumbo loan can provide up to 3 million dollars to purchase your home. These mortgages are even more difficult to qualify for a require excellent credit.