In a perfect world, home buyers would have all the money they need to purchase their dream home upfront. Most of the time, though, this isn’t the case. That is where mortgages come in. The idea behind getting a mortgage is fairly straightforward: A home buyer wants to purchase a home but does not have all the money needed to complete the transaction. Rather than having to wait and save, home buyers will then go to a mortgage broker, bank, or lender to borrow the rest of the money needed to purchase their home. Afterwards, the home buyer will pay the mortgage (which is also commonly known as a home loan) back to the lender over a given term.
Although it may seem simple, getting a mortgage is a very involved process. There are various loan programs that lenders advertise to borrowers, but understanding which one will benefit you the most is not always that simple. Below are some of the most common loan programs which lenders will use to get you a home loan. If you have any questions about loan programs, or are simply ready to apply for a mortgage, please get in touch. We’ll get you the loan you need!
Conventional loans are mortgages that are not insured or guaranteed by the federal government and is typically fixed in its term and rate. They are ideal for borrowers with good to excellent credit. Many conventional loans are conforming, meaning they adhere to Fannie Mae and Freddie Mac guidelines. These two government sponsored entities buy mortgages and sell them on the secondary mortgage market in order to make mortgages more available to borrowers.
The Short Answer: Conventional loans are a good choice for many borrowers who have good credit and can pay more than the minimum down payment on their home.
FHA loans are loans insured by the Federal Housing Administration and can be issued by any FHA approved lender. FHA loans are one of the easiest types of mortgages to qualify for. It requires a low down payment (as low as 3.5% down) and you don’t need to have the best credit to score to meet the requirements. Your credit can be as low as 500 to qualify. Unlike conventional loans, FHA loans are government insured, protecting lenders against borrowers who may default. However there is a catch: borrowers must pay mortgage insurance on the loan. This allows for lenders to offer prospective borrowers flexible requirements and better interest rates on loans.
The Short Answer: FHA loans are a good option for home buyers who do not have good credit and/or cannot pay a large down payment on their home. You will need to pay mortgage insurance along with your mortgage payment.
VA loans are one of the best and safest methods for military homebuyers to use when buying a home. Those who are serving or have served in the military including the Army, Navy, Air Force, Marines, Reserves and National Guardsmen are eligible to take advantage of this program. If you are a Disabled Veteran, you may qualify for additional benefits on a VA home mortgage loan. A VA loan allows veterans to borrow up to $417,000 with no money down and there is no limit to the number of times a veteran may use the program.
The Short Answer: If you are a veteran or are currently serving in the military, VA loans give you a great advantage for securing financing for a home. With no money down on properties up to $417,000 among one of its biggest benefits, you cannot go wrong with this loan if you qualify.