Home Loans Explained. Which loan is best for you?

There are a handful of loans available to you when shopping for a home. Make sure you understand the difference and know your options.                                                                                                                                                                 

1.Your typical CONVENTIONAL mortgage which is not backed by the government and requirements are set by Fannie Mae & Freddie Mac. Rates are slightly higher as the lender is taking more risk. The larger the down payment, the lower the rate. If you pay less than 20% down you will pay PMI (Personal Mortgage Insurance) until the 20% is reached. Keeping debt-to-income ratio low will help you qualify for this type of loan. Minimum credit scores are 620-640, the higher the better.There is NO loan amount limit. This type of loan is often best for medium to higher income families and has no loan limits or area restrictions.                                                                                                                                                                                             

2. A FHA (Federal Housing Administration) mortgage which allows down payments as low as 3.5% of the purchase price and has typical lower loan costs, lower interest rates and lower closing costs and is managed by the HUD (Dep. of Housing & Urban Development). You will continue to pay for the PMI throughout the life of the loan which will increase your mortgage payments. Great for First-Time buyers. Financial Assistance Programs are available to many buyers. This is a government-backed loan that requires minimum credit scores of 620-640 and there is a limit on how much you can borrow but no income limit or location restrictions.                                                                                                                                                                

3. An USDA (US Dep of Agriculture) mortgage which allows down payments as low as ZERO % and are managed by the RHS (Rural Housing Services) offered to residents who have a steady, low or moderate income and yet are unable to apply for a conventional loan. Income cannot be higher than 115% of the adjusted area income and PMI is often lower than that of a FHA loan. There are location restrictions, the property has to be outside of city limits in a more rural area.                                     

4. A VA mortgage offered by the US Dep. of Veterans Affairs available to active and inactive military service members. Very similar to the FHA loans and they are also government-insured. The primary advantage here is that the borrower can receive 100% financing, so NO down payment required. This mortgage does not require PMI, meaning lower mortgage payments.