Understanding different Mortgage Loan Types is crucial when financing a home. Some of the main home loan options are Conventional, FHA, Jumbo, VA, and USDA loans. Some lenders also offer Stated Income Mortgages. These loan types are different and it’s important to understand their difference. In some cases, borrowers qualify for more than one loan type. To make a right choice they need to be consulted properly to choose one that fits their goals the most. Let’s inspect them more closely.
Conventional (Administered by Fannie, Freddie) loans have higher loan limits than FHA but come at slightly higher interest rates. They generally require a 5% minimum down payment.Generally, if a loan amount is higher than 80% of the lower of appraised or purchased price, you’ll get a Mortgage Insurance.
FHA (Federal Housing Administration) loans as stated above have more forgiving credit score requirements and have lower rates. They come with a UFMIP (Up-Front Mortgage Insurance Premium) which currently is at 1.75% HUD charges for insuring your mortgage.
VA (Veterans Affairs) loans is another type of mortgage backed by the government and can be attractive for some. A Certificate of Eligibility is required. VA Mortgages are currently the only zero down payment (100% LTV/CLTV) loans on the market. VA loans are for primary occupancy only.
USDA (United States Department od Agriculture and Rural Development) loans were created to develop rural areas. They are like FHA loans with more forgiving income limits. Qualifying income for USDA loans cannot exceed 115% of area median income, which you can find on the USDA website.