Let’s chat about the different types of loans – there are many loan programs and types to choose from.
Honestly, reading about them is important.
But, the best way to determine what is the right loan for you is to get pre-qualified by an experienced, reputable mortgage consultant. We will narrow down the options to the ones that best fit your financing needs.
There are a few differences between the types of loans available, which we’ll cover in detail in the next few blog posts!
First up: conventional loans.
Conventional financing is the most common type of financing Home Team Lending does. With Conventional financing we have Conforming loans (up to $417,000) and Jumbo loans (> $417,000). The information we discuss in this post will be about Conforming Conventional Loans. (We will discuss Jumbo financing options in another post.)
Fannie Mae (FNMA) or Freddie Mac (FLHMC) set the standards for conventional loans. Conventional financing requires a minimum of 3% down. The 3% down program will have to be a special funded program. Usually these programs are going to have income limits.
We can currently do the 3% down program through the Colorado Housing and Finance Authority (CHFA). With this program, they even allow the buyer to borrow the 3% as a second mortgage against the home, allowing you to get in with as little as $1,000 down!
The standard FNMA/FLHMC loans require a minimum of 5% down. All the money for the down payment can come from a gift from a relative. Fannie & Freddie have recently rolled out their 3% down program. This will be a hot loan going into 2015. Especially when you compare the Conventional payment to the FHA payment. Look for more information on this coming up!
If you put less than 20% down with a Conventional loan, you will be required to pay Private Mortgage Insurance (PMI.) The amount of PMI will depend on the amount down and the credit score of the applicants. Having good credit pays when it comes to your mortgage options. When you get a mortgage and have to pay PMI, your premium will be better if your credit score is higher. We will discuss tips on how to improve your credit score in an upcoming blog post.
Don’t Have 20% and Not Willing to Pay PMI?
There are some conventional loans with less than 20% down that do not have monthly mortgage insurance. These loans are usually offered at a higher market rate than the loans with monthly mortgage insurance. In this case the loan is referred to as Lender Paid Mortgage Insurance (LPMI). Many times the LPMI loan will offer a lower payment than a loan that has monthly mortgage insurance.
The Credit score requirements for conventional loans are stricter than FHA loans for higher loan-to-value (LTV) loans. For example, to obtain a 3% down Conventional loan, our investor and mortgage insurance company requires a 680 credit score.
You can obtain an FHA loan that requires 3.5% down with a credit score as low as 620.
When you look at the different types of loans available to you, the plain old fixed rate, conventional loan is a great option to look at.
TIP: Spend time comparing the different options and make sure to ask questions if you don’t understand or if you want to look at different options. There is sure to be a loan that will work for you!