Here are some of the most popular mortgage loan options in the United States. See basic qualification information, down payments, and what type of buyer each loan is suited for.
Buying a home comes with a lot of big decisions. What neighborhood do we want to live in? How many bedrooms will we need in our new home? Do we want to live in an area with acreage? Or maybe you’ve already purchased a home and you want to know whether refinancing would be a good idea. These questions can be answered with the help of your family and real estate agent, but to answer the question of “what loan is right for me?” it’s best to talk with your lender.
5 Types of Mortgage Loan Options for Home Buying and Refinancing
A conventional loan is the most common mortgage option in the United States and usually has the best interest rates. A 20% down payment is standard, as any conventional mortgage loan with less than 20% down requires private mortgage insurance. Additionally, with a conventional loan, you generally need above a 680 credit score to qualify. For these reasons, a conventional loan is usually best suited for repeat buyers who can use the equity from their previous home to place as a down payment on their new home.
Federal Housing Administration (FHA)
An FHA loan makes ownership more affordable with less down and easier credit requirements. Down payments vary from lender to lender, but generally require at least 3.5% down to qualify. As for credit requirements, as long as you have above a 580 credit score, you are in luck. Another benefit for a FHA loan, is the allowance of a large debt to income ratio. Most of the time a 43% debt to income ratio is allowed meaning your monthly debt payments plus your future home payment cannot exceed 43% of your monthly income. For these flexibility reasons, FHA loans are generally best suited for first time buyers.
Veterans Affairs (VA Home Loans)
A VA home loan takes away the need for a down payment without the risk of private mortgage insurance. These are huge benefits since coming up with a down payment is often the biggest worry for future home buyers. You’re also able to pay off your VA loan early with no fear of getting hit with any prepay penalties. On the other hand, if you’re looking to purchase a second home or an investment property, this loan isn’t for you as VA loans are intended for primary residencies. As you can guess, you must be a veteran or an active duty service member to qualify for a VA loan.
United States Department of Agriculture (USDA)
USDA loans are zero down payment mortgages for rural and suburban homebuyers. With a USDA loan borrowers also receive a lower interest rate because the loan is insured by the USDA and borrowers are required to pay up front and ongoing USDA mortgage insurance fees. There are however, borrower income limits. Borrowers who earn more than the income limit cannot qualify for a USDA loan, even if they live in a USDA designated rural area. These loan limits vary by county. USDA loans are generally best suited for investors.
Adjustable Rate Mortgage (ARM)
These rates start out lower than any other option, but fluctuate with the market (for good and for bad). These can be useful loans for getting into a home, but they are also risky. If you anticipate your income rising enough in the coming years to cover higher mortgage payments or believe interest rates may decline in the future and can accept the risk, the ARM loan could be for you. Most conventional loans require at least 5 percent, but a suggested 20% down. These loans are suited for anyone interested and eligible.
We would be happy to talk with you about different types of mortgage loan or home loan refinancing options that you may qualify for; put Guild’s decades of experience to work! Call us at 253-830-2300 or contact us online.