If you’ve been reading our Home Loan series of posts, you will have read:
- How to Shop for a Home Mortgage
- Mortgage Broker, Banker or Portfolio Lender
- Pre-Qualified, Pre-Approved or Fully-Underwritten?
Good job! You are on your way to being an informed buyer ready to apply for your home loan. But with so many options, which type of home loan should you get? With the help of your lender, you’ll be able to determine the best home loan product for you. In the meantime, here’s a helpful overview of common mortgage loans:
Conventional Home Loan:
A mortgage not guaranteed by a government agency such as; FHA (Federal Housing Administration), VA (Department of Veterans Affairs) or USDA (US Department of Agriculture).
There are a number of conventional home loans available including:
- Conforming loans – conform to guidelines set by Fannie Mae and Freddie Mac
- Non-conforming loans – loans that don’t conform to GSE (government-sponsored enterprise) guidelines
- Jumbo loans – exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA)
- Portfolio loans – held by lenders on their own books so they can set their own guidelines
- Non-qualified (previously referred to as Sub-prime loans) – conventional home loans for borrowers with low credit scores. However, they often come with high interest rates and fees.
FHA Home Loan:
The Federal Housing Administration (FHA) insures these loans. In the event that a borrower defaults, the risk of loss is reduced.
Some of the benefits and conditions of FHA home loans include:
- Down payments as low as 3.5% with a credit score over 580
- Available with a 10% down payment for a credit score of 500-579
- Must pay a mortgage insurance premium for life of loan
- Can only be used for primary residence
- Must use an FHA approved appraiser
- The loan is assumable
In addition to the items above, there may be other conditions. Your mortgage broker can provide you with full details.
VA Home Loan:
A mortgage that is guaranteed by the US Department of Veterans Affairs (VA). VA Loans are issued by qualified lenders and are available to veterans and service members; survivor benefits may be available.
Some of the qualifications for a VA loan are:
- You must be an active Service Member or United States Veteran (other conditions apply)
- Acquire a Certificate of Eligibility (DV214)
- Use a VA approved lender
- Use a VA assigned appraiser
- Must be an occupied primary residence
There are a number of benefits to a VA loan, the most significant of which are no down payment and lower interest rates. Speak with a knowledgeable lender to find out if using your VA loan eligibility is right for you.
USDA Home Loan:
A mortgage that is issued and guaranteed by the United States Department of Agriculture (USDA). USDA loans were developed to, “improve the economy and quality of life in rural America”. Consequently, they are only available for rural and suburban properties.
Some unique benefits of USDA loans are:
- It is a 0% down payment loan
- Designed for borrowers who aren’t wealthy or don’t qualify for traditional mortgages
- Offers low interest rates (with subsidies, can be as low as 1%)
- Include home improvement loans and grants
USDA loans are only issued to US Citizens or permanent residents and must be used for an owner occupied primary residence. Also, there are other nuances to a USDA loan. Be sure to speak to a specialist to get information on income limits and find out if you qualify.
Ready to take the next step? Give us a call, we’re standing by to help you navigate the road to home ownership.