Home Loans

Primary Home Loans

There are four standard loan programs offered by most lenders: conventional, FHA, VA and USDA.

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Conventional loans.

With requirements set by Fannie Mae and Freddie Mac, conventional loans are the most popular of the four options discussed here, but they also have the most stringent qualifying requirements. Some perks of conventional mortgages include:

  • No mortgage insurance with a 20% down payment
  • The ability to buy a second home or investment property
  • Higher loan limits than FHA loans

Conventional lenders require private mortgage insurance (PMI) if you make less than a 20% down payment. PMI protects them if you’re unable to make your payments and they have to foreclose on your home.

FHA loans.

Loans backed by the Federal Housing Administration (FHA) are a good choice for borrowers with low down payment savings and low credit scores. Borrowers may qualify with scores as low as 500 with a 10% down payment — much lower than the 620 minimum requirements set by conventional lenders.

Despite the extra credit flexibility, FHA loans have some drawbacks, including:

  • Expensive FHA mortgage insurance paid regardless of your down payment amount
  • Lower loan limits than conventional loans

FHA mortgages require two types of mortgage insurance. The first is an upfront mortgage insurance premium (UFMIP) of 1.75% that is added to your loan amount. The other is an annual mortgage insurance premium (MIP) ranging from 0.15% to 0.75% of your loan amount, divided by 12 and added to the monthly payment. One big advantage over PMI: FHA mortgage insurance premiums are the same regardless of your credit scores, while PMI premiums increase the lower your scores are.

VA loans.

If you’ve served or are currently serving in the military, you may be eligible for a VA loan, which is backed by the U.S. Department of Veterans Affairs (VA). No down payment or mortgage insurance is required. You may need to pay a funding fee, however, if you’re not exempt due to a service-related disability.

One unique feature of VA loans is they aren’t subject to loan limits like conventional and FHA loans are. That gives VA borrowers more borrowing power — potentially with no down payment — in expensive parts of the country. VA lenders may set their own loan limits, so check with your loan officer if you’re getting preapproved for a large VA loan amount.

USDA loans.

Borrowers with low to moderate incomes searching for homes in rural parts of the country may be eligible for a mortgage backed by the U.S. Department of Agriculture (USDA). No down payment is usually required, but income limits apply.

Getting a mortgage preapproval for a USDA loan requires a look at more than just your personal finances — the home you buy must be located in a rural area approved by the USDA. You can check the home address on the USDA website to see if it’s located in a USDA-designated rural area.

Ven Sunkara

Mortgage Specialist

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Ven Sunkara
Mortgage Specialist

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