A conventional mortgage refers to a loan that is not insured or guaranteed by the federal government. A conventional, or conforming, mortgage adheres to the guidelines set by Fannie Mae and Freddie Mac. It may have either a fixed or adjustable rate.
The maximum limit for a conforming loan depends on the county and state you live in.
Other benefits of a conventional loan:
3% down payment for first time homebuyers
5% minimum on purchases of primary residence
Mortgage insurance falls off or can be
requested removed after 80% Loan-to-value
No pre-payment penalty
Refinance or purchase loans with or without mortgage insurance
An FHA loan is insured by the Federal Housing Administration, a federal agency within the U.S. Department of Housing and Urban Development (HUD). The FHA does not loan money to borrowers, rather, it provides lenders protection through mortgage insurance (MIP) in case the borrower defaults on his or her loan obligations.
Available to all buyers, FHA loan programs are designed to help creditworthy low-income and moderate-income families who do not meet requirements for conventional loans.
FHA loan programs are particularly beneficial to those buyers with less available cash. The rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans.
Some of the other benefits of FHA financing:
Only a 3.50% percent down payment is required
Closing costs can be financed
Lower monthly mortgage insurance premiums and, under certain conditions, automatic cancellation of the premium
More flexible underwriting criteria than conventional loans
FHA limits the amount lenders can charge for some closing cost fees
(e.g. the origination fee can be no more than 1% of mortgage)
Ability to streamline or take cash out after 6 months of on time payments
VA guaranteed loans are made by lenders and guaranteed by the U.S. Department of Veteran Affairs (VA) to eligible veterans for the purchase of a home or refinance. The guaranty means the lender is protected against loss if you fail to repay the loan.
In most cases, no down payment is required on a VA guaranteed loan and the borrower usually receives a lower interest rate than is ordinarily available with other loans.
Other benefits of a VA loan include:
Closing costs are comparable and sometimes lower - than other financing types
No private mortgage insurance requirement
Right to prepay loan without penalties
Ability to streamline or take cash out after 6 months of on time payments
Counselling and assistance available to veteran borrowers having financial difficulty or facing default on their loan
If the veteran does not have 10% or more disability the VA charges a funding fee to issue a guarantee to a lender against borrower default on a mortgage
The fee may be paid in cash by the buyer or seller, or it may be financed in the loan amount
A Certificate of Eligibility from the VA must be presented to the lender to qualify for the loan.
Jumbo Loans are non-conforming loans that exceed the conforming loan limit. Due to the high risk on lenders, jumbo loans have stricter criteria to qualify usually set by the lender.
Typically, jumbo loans are associated with:
- Higher credit score requirement
- Higher down payment requirement
- Larger down payment requirement
- Lower debt to income requirement
- Higher interest rates than other loan types.
Construction Loans are typically shorter-term loans that secure funds that are used to build a home. The loan will usually cover all items such as land cost, building materials, labor, executed documents, etc.
Construction loans will need to be paid in full at the end of the construction or converted into a permanent mortgage loan such as the other loan types discussed on this page. (Conventional, VA, FHA, or Jumbo)
HELOC’s are revolving credit lines with a credit limit that are borrowed against the equity in your home.
- Borrower as much funds as needed at any time up to the maximum credit limit
- Make monthly payments on withdrawn funds with interest
- Interest rates are typically variable.
