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Mortgage Types: Not a Foreign Language

MORTGAGE TYPES: Not a Foreign Language

If you are a first time home buyer or a repeat buyer, I’m sure both can agree that when it comes to knowing the different mortgage types it can feel like you are reading a different language. Whichever home buyer you are, the beginning process is the same for all.

You start monitoring your credit score and saving money to put towards your downpayment. When it comes to figuring out which mortgage loan is appropriate for you, keep in mind that each type has their own set of requirements along with pros and cons to the terms. It’s very important you do some research yourself, but it’s more important that you speak with a lender.

I’ve broken down the most common loans and their typical (not every time) terms:

Backed By:Type of Home:Loan Costs v. Rates:Downpayment:PMI/MIP:Credit Requirements:Debt-to-Income Ratio:For What Buyer?
ConventionalNot Government insured Backed by government enterprises (Fannie Mae/Freddie Mac)Primary Residence, 2nd Home, Investment PropertyLower borrowing costs
&
Higher rates
Higher Downpayment with Government Loans

Avg = 20%
More than 20% down = NO PMI

Less than 20% down = Private Mortgage Insurance (PMI)
– Automatically removed when loan-to-value ration is 78%
620+ FICO
lower the score
higher the rate
less than 45% – 50%Buyer with strong credit

stable income and employment history

at least 3% downpayment
FHAGovernment Insured by Federal Housing AdministrationOwner Occupied Residences OnlyHigher borrowing costs
&
Lower mortgage insurance rates
(compared to conventional loans)
Downpayment can be a gift

Lower than Conventional
Depends on downpayment size, Mortgage Insurance Premium (MIP) for life of loan
(Not cancelable)
More relaxed requirements

Typically 580 minimum
Regional loan limitsNo $ for large downpayment

Not great credit

Low-to-Moderate First Time Home Buyer
*usually
VAGovernment Insured by U.S. Department of Veteran AffairsPrimary Residence Only Low interest rates

“funding fee” – helps offset cost to taxpayers
*can roll into VA loan or pay at closing
Downpayment not required
speak with a lender to verify
No PMI/MIPNo minimum credit requirementsNo max ratioActive Duty,
Veterans, Reservists & Their Spouses
Information received from www.mortgagecalculator.org

Keep in mind… this is a generalization of the three main loan types. There are various different loans as well as modifications you can make to the loans.

One of the biggest parts of buying a home, is finding the financing that’s right for you. If you’re wanting to know exactly what your terms would be, then be sure to speak with a lender. When you meet with a lender, he/she will discuss the options that are available to you and can help you decide what the best fit might be. Your lender will be able to give you special programs that fit your needs and what you’re looking for. Even if you don’t qualify at the moment, then a lender can tell you what it is you need to do to be able to qualify at a later date.

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