Mortgage Loan Types

One of the areas that people have the most confusion is with the types of mortgage loans available.  There are two main types of mortgage loans. conventional and government.

Government loans seek to guarantee the mortgage industry success by opening loan options to all qualified citizens. The U.S. government does not lend directly to individuals . It simply ensures mortgage loans against default from FHA-approved lenders.

The Federal Housing Authority (FHA) is a division under the Department of Housing and Urban Development (HUD). These are typically the most easily and commonly procured mortgage loans for individuals with a low scoring credit history. They often boast a low down payment and low closing costs, along with relaxed credit restrictions. Common down payments are between 3%-5%.

The lender does require Private Mortgage Insurance (PMI) however for the life of the loan. On an FHA loan, the loan limit varies by county. The maximum amount on a regular loan for a one-unit property is $417,000 in the lower 48 states. It’s $625,500 for Alaska and Hawaii.

  • Veterans Affairs (VA) loans are a government backed loan product made available since 1944. These loans are 100% financed loans. If you qualify for the loan you you pay absolutely nothing for the down payment. Most of the United States does have a limit of the mortgage that will qualify for no money down of $453,100.  There is a VA Funding Fee of 2.15% for your first VA Loan and a requirement that this is your primary residence.
  • conventional loan is a mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA) and the Department of Veterans Affairs (VA). It is typically fixed in both its terms and rate. This loan option is ideal for investor properties, or for homebuyers with sufficiently high credit scores and ability to pay a down payment.
  • Non-conforming Loans are loans that are not bought by Fannie Mae, Freddie Mac, FHA or VA. The reason is typically higher loan limits (greater than $424,100) and the major investors don’t purchase bigger loans. The loans frequently require a much lower debt to income ratio to lower lender risk.
  • Conforming Loans  The primary advantage of a conforming loan is that for borrowers with excellent credit, they typically offer lower interest rates, which means lower monthly mortgage payments and less money spent on your home over the life of the loan. In order for a mortgage loan to be conforming, it must meet the specific criteria that allow Fannie Mae and Freddie Mac to purchase the loan. For the first time since 2006, the Federal Housing Finance Agency (FHFA) has increased the conforming loan limit for a single-family, one-unit property — from $417,000 to $424,100. Certain areas of the country, such as Alaska, and Hawaii, have a higher loan limit, due to their higher-priced housing markets.
  • Jumbo Loans- Jumbo mortgages, or jumbo loans, are those that exceed the dollar amount loan-servicing limits pu in place by Government Sponsored Enterprises (GSE) – Freddie Mac and Fannie Mae. This makes them non-conforming loans.

Resources for information

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