Conventional loans are usually categorized into Conforming Loans or Non-Conforming Loans. The easiest way to differentiate the two is that a Non-Conforming Loan is a loan amount above $417,000 which is often referred to as a Jumbo Loan. Conforming loans can also be noted as a loan which meets or “conforms” to secondary market guidelines so that it can be sold to investors. Typically, Non Conforming loans do not meet these re-salable guidelines.
The traditional down payment for conventional loans is 20% of the purchase price. However, there are instances where a borrower can put less but there may be an extra charge on the loan called PMI (Premium Mortgage Insurance). This “extra” amount can be paid monthly with your mortgage payment and will can be removed once the loan to value meets specific guidelines.
Debt to Income ratio requirements for conventional loans must fall below 36% (housing expense vs. income) and 42% (all expenses vs. income). A 720+ credit score is usually required; a borrower can still have a lower credit score but it may come at a price when applying for the mortgage.
Conventional Loans are amortized over 30, 25, 20, 15, and sometimes 10 years. They are typically fixed interest rates over that time period unless a refinance takes place, thus lowering the interest rate. ARM (Adjustable Rate Mortgage) loans are available for conventional products.
FHA(Federal Housing Administration) loans are designed for individuals who are unable to make a large down payment. FHA loans allow the borrower to have a down payment as low as 3.5% which can come from a gift or a grant, which makes FHA loans popular with first-time buyers.
PMI (Premium Mortgage Insurance) is charged to borrowers who do not put 20% down even on FHA Loans. The PMI is charged up front on top of the loan amount as well as monthly for this product. The FHA borrower credit score requirement is 620+ and is offered loans amortized over 30 and 15 years for both fixed interest rates and adjustable rates. FHA Loans have traditionally required more documentation from the borrower when the loan is submitted.
The VA Loan program was established by the United States Department of Veterans Affairs to help veterans and their families obtain home financing. The Department of Veterans Affairs does not directly originate VA loans; instead, they establish the rules for those who may qualify, dictate the terms of the mortgages offered and insure VA loans against default.
The borrowers my finance up to 100% of the purchase price on the home. In order to qualify for a VA loan, borrowers must present a certificate of eligibility, which establishes their record of military service. A 620+ credit score is required with loan terms of 30 and 15 years with fixed interest rates.
Education is the cornerstone to building a successful future and without the proper education it’s often difficult to make big life decisions, such as purchasing a home. Please take the time to review and educate yourself on the mortgage products and programs available to consumers. Coach Zach takes pride in educating his clients from start to finish. The educated client who better understands the mortgage process will usually have a much more positive home buying experience. However, please be aware, there is a lot of information and intricacies of the mortgage business. The information provided is basic information to assist in preparing borrowers. Any questions for the professionals should be directed to Your Mortgage Coach Zach, who has the experience and knowledge.