Picking a Winner: loan types

I’m your go-to for all questions about real estate…but while my license lets me help you find your next home, lenders require different licensure than mine. Meaning I know the different loan types, their advantages and disadvantages, and what the lender’s requirements are for each loan type. Below I’ve laid out the different types of loans available from most lenders. While other banks may have different products than these, the below loans are available from any institutional, licensed lender.

First of all, if you haven’t bought a home in the past 5 years, forget everything you know, because oh boy have things changed! Here are just a few examples:

1. Lenders can now approve some buyers with credit scores in the 580s (it used to be 620!)
2. Some lenders are now able to help buyers who have no credit yet- they can look at other accounts besides debt balances
3. Lenders can now approve some buyers who have bankruptcy in their history, even a recent one!

In the early 2000s, when interest rates were averaging well over 8%, buyers had to have a higher credit score and as much as 10% or more to put towards a down payment. Thanks to various federal regulations, we now have several loan products to choose from! Please note that each loan product has many options, customizations, etc. I think it’s safe to say that no two loan files are the same, so your loan will always be tailored to fit your situation and your current needs. Your lender will be able to look at your financial situation and tell you which loans would be best for you!

Let’s look at a brief overview of the different loan products and how they work.

1. Conventional loans are mortgage loans that are not backed by a government agency such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the US Department of Agriculture (USDA). These loans are typically available through private lenders such as banks or credit unions, and they often have stricter credit score and income requirements than government-backed loans. Conventional loans can offer more flexibility in terms of loan amounts and repayment terms, and they generally do not require mortgage insurance if the borrower makes a down payment of at least 20% of the home’s purchase price.

2. A VA loan is a type of mortgage loan that is available to veterans, active-duty service members, and their eligible surviving spouses. The purpose of a VA loan is to help eligible individuals purchase a home without having to put down a large down payment or pay for private mortgage insurance. VA loans typically have more relaxed credit score requirements and offer competitive interest rates. They are guaranteed by the Department of Veterans Affairs, which means that lenders who offer VA loans are protected against losses if the borrower defaults on the loan.
   side note: I am a designated Military Relocation Professional, meaning I receive extra training and education on how to best serve my military clients… I’m married to a veteran and I know how important home is to a military family!

3. An FHA loan is a mortgage that is insured by the Federal Housing Administration. These loans are designed to help low- to moderate-income homebuyers purchase homes with lower down payments and credit scores than traditional loans typically require. FHA loans are popular among first-time homebuyers because they often require a down payment of only 3.5% of the purchase price, and they have more flexible credit score requirements than conventional loans.

   One drawback of FHA loans is that they require borrowers to pay mortgage insurance premiums (MIP) throughout the life of the loan. The upfront MIP is typically 1.75% of the loan amount, and the annual MIP is divided into monthly payments that are added to the borrower’s mortgage payment.

   FHA loans have a number of other requirements and restrictions, including limits on the amount of money that can be borrowed and restrictions on the types of properties that can be purchased with FHA loans.

4. The USDA Loan is a type of mortgage loan that is offered to homebuyers in rural areas. It’s designed to help low- to moderate-income individuals and families purchase homes without having to put down a large down payment or pay for private mortgage insurance. USDA loans are guaranteed by the US Department of Agriculture, which means that lenders who offer USDA loans are protected against losses if the borrower defaults on the loan.

   To be eligible for a USDA loan, the property being purchased must be located in a designated rural area. The borrower’s income must also fall within certain limits, which vary depending on the location and size of the household. Additionally, USDA loans have more relaxed credit score requirements than traditional loans typically require.

   USDA loans offer several benefits to homebuyers, including:

   • No down payment required
   • No private mortgage insurance required
   • Competitive interest rates