Home Loan Options
Summary: There are many different loan types, for this article we focus on four: Conventional, FHA, VA, and Jumbo loans. Conventional loans can be used to purchase a first home, a second home, or investment property. FHA loans are government-supported loans that give homebuyers more flexibility with lower credit limits and high debt-to-income ratios. VA loans are another form of government-supported loans offered to active military members, veterans, and qualifying spouses. Jumbo loans allow borrowers to purchase homes above the guidelines and price range of conforming loan limits.
Every loan, just like every house, is unique. You must take into consideration the pros and cons but also your financial fitness. Read on for some common home loan options.
Conventional loans can be used to purchase a first home, a second home, or investment property. There are two types of conventional loans: a conforming loan and a non-conforming loan. Conforming loans must follow a set of guidelines regulated by the Federal Housing Finance Agency (FHFA) such as your credit score, debt, size of your loan, and more. Non-conforming loans do not have to follow such guidelines or standards set by the FHFA. Regardless of your conventional loan being conforming or non-conforming, there are certain conditions you must meet to qualify. Different lenders have different requirements, but some common factors are: a credit score of 620 or higher and a Debt-To-Income (DTI) ratio of 43% or less.
Conventional loans are ideal for individuals who have good credit scores and can commit to a generous down payment.
FHA loans are government-supported loans that give homebuyers more flexibility with lower credit limits and high debt-to-income ratios. FHA loans are given to individuals and families who may not be in a position to meet their down payment requirement or for those who have a low credit score for conventional loans. This loan allows homebuyers to become homeowners while staying within their means. Borrowers need a minimum credit score of 580 and be able to put a 3.5% down payment towards their loan. If you have a lower credit score, a credit score of 500 can also be accepted but only with a 10% down payment. Different mortgage lenders set different requirements. Some mortgage lenders may require a higher credit score while others may not—make sure to speak with your mortgage lender to know the most current requirements.
FHA loans also require two mortgage insurances, one that is paid upfront at closing and the other is paid monthly through the life of the loan regardless of how much equity homeowners may have in their property. FHA loans also hold limits on the types of homes you can purchase. FHA loans are primarily used to purchase homes the buyers wish to live in, which means you cannot use an FHA loan to purchase an investment property. These loans are great for those who wish to be homeowners but may not have a generous down payment or the perfect credit score for other loans.
VA loans are another form of government-supported loans offered through VA approved lenders. Both active and veteran military members and their spouses may be eligible. VA loans offer tremendous benefits. For starters, VA applicants are offered the lowest rates possible even if the veteran’s or active member’s credit score is not the best. VA applicants do not have to put a large down payment on their homes, and in some cases may qualify for $0 down. VA loans also do not require mortgage insurance. If the veteran or active member is disabled, the VA funding fee can be waived at closing—which is generally 2.3% of the entire loan amount.
Active duty or veterans can use a VA loan for a primary home purchase or refinance their current mortgage. VA loans help individuals and families who are actively serving or have served in the military to finance a home when they may have not qualified for other loans.
If you are thinking about buying or refinancing a home that is above the guidelines and price range of conforming loan limits, then a jumbo loan program is the best fit for you! Since the purchase price for the homes go beyond conforming loan limits, in-depth requirements and documentation is needed. You must have a credit score of 700 or higher, a debt-to-income (DTI) ratio of 45% or lower, putting at least 10 – 20% down, and proof of large numbers of assets in cash or in savings account are needed before qualifying for a jumbo loan. Some investors may also request two appraisals be done on the home.
Jumbo loans are great for individuals interested in purchasing expensive homes and have great credit scores.
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