Buying a house is an exciting time in your life! But it can quickly become overwhelming once you start the mortgage process. Luckily, having an agent and mortgage broker that you trust can be an invaluable asset! Until then, here’s a little information on some of the different programs to get you started!
Conventional
- Usually 30 year, fixed interest rate
- Not guaranteed or insured by a government agency
- Customarily requires 20% down payment
- Requires a credit score of at least 580 (Most lenders require it to be much higher to avoid other fees)
- Your mortgage payment plus the rest of your debts can not exceed 36% of your gross monthly income.
Conventional 97
- Backed by Fannie Mae
- Fixed interest rate only
- Requires at least a 3% down payment
- Can only be used to purchase owner occupied single family dwellings (including condos, townhouses and coops)
- Capped at $417,000 loan size
- Requires private mortgage insurance (PMI)
- Requires credit score of at least 680
- Allows for 100% gifted down payment
- Your mortgage payment plus the rest of your debts can not exceed 45% of your gross monthly income.
Federal Housing Administration (FHA)
- Guaranteed by the government – Federal Housing Administration
- Requires minimum 3.5% down payment – dependent on credit score
- Minimum credit score of 500 (though most lenders like credit scores to be over 620)
- Rehab loans possible
- Typically lower interest rates than conforming loans
- Requires upfront mortgage insurance premium and mortgage insurance payments for the life of the loan
- Allows sellers to contribute up to 6% of the loan amount towards closing costs.
VA Loan
- Only for Veterans (and some surviving spouses)– must obtain documentation
- Guaranteed by the government – Department of Veteran Affairs
- Typically a 30 year, fixed interest rate program
- Allows for 100% financing – 0% down payment
- Requires an upfront VA Funding Fee that varies – can be rolled into financing
- Mortgage is assumable
- Most VA lenders require a credit score of at least 620
- Negotiable interest rate
- Your mortgage payment plus the rest of your debts can not exceed 45% of your gross monthly income.
USDA Loan
- Guaranteed by the government – United States Department of Agriculture
- Direct Loans from the USDA possible
- For Rural areas only
- Can only be used to purchase, refinance or rehab owner occupied primary residence.
- Must meet lower income eligibility requirements
- Must be a US citizen or permanent resident
- Requires a credit score of at least 580
- Allows for up to 100% financing – 0% down payment
- Requires mortgage insurance premium and monthly payments (usually lower than other loan programs)
- Access to “better-then-average” mortgage rates
- Fixed interest rate only
- Allows for gifts from family members and non-family members
There are many options available to you as a consumer. The best thing you can do for yourself is work closely with your mortgage broker to figure out the best program for you. Remember to get pre-approved before you start looking for a home. It would be a shame to fall in love with a house and then find out you can’t afford it!
Happy Searching and Happy Financing!