There are four different types of loans that are offered to those who are refinancing or purchasing a home. Depending on your credit score, location, income, debt and in the military determines which loan you qualify for. Each loan program is set up to meet certain needs for different circumstances for example, if you have a lower income but a great credit score you are eligible for an FHA loan, Veterans have certain benefits when it comes to purchasing a home or refinancing. Here are the four different loan programs:
A VA loan is a loan that is guaranteed through the government. These loans are made by private lender, such as banks, savings & loans or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if the borrower fails to repay the loan. A benefit to the veteran is that there is not a down payment when purchasing a home, they get 100 % financing. The guaranty replaces the down payment for the lenders. The maximum guarantee authorized by the VA is 25% of the loan amount up to $104,250.
The maximum home loan amount is $417,000 (the maximum in HI and AK is 156,375 and home purchase is $625,000). If you are a veteran getting disability compensation and not drawing retirement pay you are exempt from paying the VA funding fee. Also, spouses of those who have died in service, or from service related disabilities are also exempt. In the end, VA has the last word on who is exempt.
An FHA Loan is a mortgage loan that is insured by the federal housing administration. The federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults. The FHA loan was created in response to the increase in foreclosures and defaults that happened in the 1930’s. The FHA loan is popular with first-time homebuyers because there is low down payment and you can have less than perfect credit. FHA requires a low down payment of 3.5 percent of the purchase price. One disadvantage is MIP (Mortgage Insurance Premium) which insures the government in case the borrower decides to back out of the loan.
There is an upfront MIP charge of 1.75 % of the loan amount. There is also an annual monthly MIP charge based upon the borrowers LTV (loan to value) ratio and length of loan. If the loan is longer than 15 years, than after five years your remaining balance is 78 percent of the value of the property. If your term is shorter than 15 years, you do not have to pay MIP for five years, you just have to pay MIP until your remaining balance is 78 percent.
The conventional loan is the most common type of mortgage. It is not insured by any government program. Conforming Conventional loans follow the loan amount guidelines set by Fannie Mae and Freddie Mac. Nonconforming loans do not meet those qualifications, but are also considered conventional. Each mortgage lender will offer different rates, terms and fees for conventional loans, so it’s best to get a Good Faith Estimates from a number of different places to find the best loan. The following are some of the things they will look at to determine if you qualify for a conventional loan: income and monthly expenses, standard debt to income ratios are 28/36, and credit score and history. A FICO score of 620 or higher is better to help qualify. Down payment requirements are 5 to 20 % of the sales price.
A USDA (United States Department of Agriculture) loan is a no down payment option home financing option for homebuyers in rural areas. Qualifications are based on your location. There are many benefits to this type of loan. Here are some of those great benefits: it requires NO money down, up to 103.5 % financing it includes the funding fee, closing costs can be rolled into the loan, there is not a maximum loan amount, you do not need assets to qualify, having a lower credit score is possible (current minimum is 640), secure 30 year fix term at low market rate, and also the property can be a regular sale, short sale, or a foreclosure etc.
So as you can see there are many great options to choose from. If you have any questions about qualifications you may ask a loan officer or mortgage company. Hopefully you can find a loan program that best suits your needs.
By Eric Smith