Buying a home can be a confusing process. Especially when it comes to picking the right mortgage for you. This is something that your mortgage loan originator (MLO) can help you with. To give you a head start at understanding the different types of loans, I am going to share the basics of each loan type. Note: The eligibility and requirements for loans is on a lender-to-lender basis.
Conventional, Fixed Rate: Conventional loans offer some great perks. Down payments as low as 3%, however, if you make a 20% down payment, you don’t have to purchase mortgage insurance. Mortgage insurance is cancelable when home equity reaches 20% and mortgage insurance is offered at a lower cost compared to FHA loans. The minimum required credit score is 620. Conventional loans allow for all occupancy types, including primary residence, second home, and investment properties.
FHA: An FHA loan is the most common loan type, especially among new home buyers. The minimum down payment required is 3.5% of the purchase price. However, some institutions offer special programs that can lower your down payment. Your total monthly mortgage payment cannot exceed 30% of your gross monthly income. You must have consistent employment for 2 years and verifiable income. Eligible properties for an FHA loan are a home with 1-4 units, a condominium unit, or a manufactured home that sits on a permanent foundation. These loans require mortgage insurance which helps protect the lender from losses due to defaults on mortgage loans.
FHA 203(k): This is a renovation loan. Say you want to buy a fixer upper or the home you wish to purchase is not exactly in its glory, this would be the loan for you. It adds the cost of repairs into the loan amount so you don’t have to have the cash on hand for the fix-ups. Some of the repairs that can be included in this loan are roofs, flooring, basement/attic finishing, plumbing, electrical, bathroom/kitchen modernization and window/door replacement. FHA 203(k) loans require a minimum of $5,000 in needed repairs but have no maximum limitations. The repairs need to be quoted and executed by a licensed contractor.
VA (Veterans Affairs): VA loans do not require a down payment and limits your closing costs. VA loans also do not require you to purchase mortgage insurance although some implement a funding fee. There is no penalty to pay the loan off early. You must be the personal occupant of the home, have sufficient income and suitable credit. There are many other eligibility requirements for VA loans. To find out if you qualify, contact your MLO.
For more information, to see if you qualify, or for any other mortgage related questions, feel free to contact:
CrossCountry Mortgage, Inc
Direct: (440) 375-1040
Cell: (216) 906-3833