There are a number of different mortgage options available to home buyers.  Some mortgage options are open to anyone whereas some of the other programs are reserved for specific individuals and/or specific properties.  In this article home buyers can learn about the various different home mortgage options as well as the benefits available for each.  Check out the different options below so that way as a home buyer one can understand the options offered by lenders and what may work best for them.

Conventional Mortgage 

A conventional mortgage is the traditional mortgage that is not insured or guaranteed by any government entity.  Conventional mortgages can be sold by lenders to Fannie Mae (FNMA – Federal National Mortgage Association) and Freddie Mac (FHLMC – Federal Home Loan Mortgage Corporation).  By selling the end mortgage to FHLMC or FNMA the lender then has more money to lend for new mortgages.

With a conventional mortgage a home buyer can pay as little as 5% down (some buyers may be eligible for 3% down payments based on first time buyer status and other criteria).  The down payment amount will depend on the lender as some may require a higher down payment based on their own internal policies.  Any down payment of less than 20% does require the borrow to pay Private Mortgage Insurance (PMI).  The PMI amount will be calculated based on the borrower’s credit score, how much is being borrowed, their debt-to-income (DTI) ratio and more.  Once a borrower has reached 20% home equity based on consistent payments they can request PMI payments to be stopped.

The minimum credit score requirement for a conventional mortgage will be 620.  Some lenders may require higher credit scores based on their internal policies therefore it pays to consult with more than one lender. The credit score, DTI and amount borrowed does factor into the overall mortgage rate the borrower can expect.  Higher credit scores, lower DTIs and lower amounts borrowed can save money on the mortgage in the long term therefore it is helpful for borrowers to come prepared ahead of time by trying to improve those three criteria.

Non-Conventional Mortgages

VA Mortgage 

If one is an Active-duty service member, Veteran, National Guard or Reserve member (with certain time requirements), and/or a surviving spouse of one of the above (must meet other requirements) a VA mortgage may be the mortgage to look at.  A VA mortgage offers down payments requirements as low as zero percent with no mortgage insurance.  VA mortgages also allow for lower credit scores to be considered compared to a conventional mortgage.

With a VA mortgage there are options for 30 and 15 year fixed rate mortgages as well as Adjustable Rate Mortgages (ARM) based on the borrower’s needs.  As an initial step the lender will need to request a copy of the Veteran’s certificate of eligibility to ensure they qualify for a VA loan and at the amount they are seeking to borrow.  The typical steps used for other mortgages apply to the VA mortgage in that the lender will need information on the borrower’s income and debt and will be asking for documentation such as paystubs, tax returns and more.

FHA Mortgage 

With a Federal Housing Administration (FHA) mortgage a home buyer does not need to have a picture-perfect credit score and can get into a home with very low-down payment.  The FHA mortgage is a government backed loan offered to a wide range of home buyers and especially first-time home buyers.  Since the mortgage is backed by the federal government mortgage lenders have the ability to offer these loans with reduced risks to themselves.

FHA mortgages are available in 15 and 30 years terms.  They also are available as ARMs for those wanting an adjustable rate mortgage loan.  There are also FHA refinance programs, energy efficient mortgages (to finance energy efficient improvements), and the 203(k) rehabilitation mortgage which allows a home buyer to buy a home that is in need of repairs to get it into livable condition.  There will be mortgage insurance charged with the mortgage to help ensure against any losses.

USDA Mortgage

The United States Department of Agriculture (USDA) Home Loan is a loan program intended for rural property home buyers and owners.  Down payments can be as low as zero percent.  There are maximum income limits for these loans as they are mainly intended to help those obtain a mortgage to buy a home in a rural area who might not necessarily qualify for a conventional mortgage.  The home buyer still needs to be able to pay the mortgage, insurance and tax payments based on their income.  The USDA mortgage does have an up-front funding fee and will have a monthly mortgage insurance requirement as well.

Final Thoughts

What kind of mortgage is best for your situation?  Reach out and schedule a no obligation consultation so you can learn what mortgage would work best for situation and what possible rates you will see on a mortgage.