Not all mortgages are created equal, and choosing the wrong one can cause you massive financial headaches down the line. With that in mind, let’s take a look at six ways of getting mortgages and how you can decide if they’re right for you.
- Traditional Mortgages
These are not backed by the government. Those with good credit and stable income histories and employment can usually qualify as long as they can make a 3% down payment. That said, to avoid private mortgage insurance (PMI) you’ll typically want to make a 20% down payment.
- Conforming Mortgage Loans
These are loans set by maximum loan limits as set by the government. The limits can vary by geographic area, so you’ll want to check the FHFA to see what it might be in your area.
- Nonconforming Mortgage Loans
These are loans which, due to the amount involved in the loan or issues with underwriting, cannot be handled by agencies such as Fannie Mae and Freddie Mac. They are also known as “jumbo loans” because they are typically quite large in size. These are higher risk loans, so you’ll typically need to be able to show that you have a large reserve of cash, a strong credit history, and be able to make a down payment of at least 10% to 20%.
- FHA Loans
If you are a low income buyer looking to purchase a home for the first time, the government may be able to help. Borrowers can sometimes put up a down payment of as little as 3.5%. However, all borrowers must pay an annual mortgage insurance premium (MIP) to provide protection against the borrower defaulting for the lifetime of the loan. Still, this may be one of the best options for lower income individuals and families, who should check with the FHA to see if they qualify.
- Veterans Affairs Loans
Active service members, veterans, and military families can receive home buying assistance from the VA. You can finance 100% of the loan without needing to put up a down payment. VA Loans also afford fewer closing costs and better interest rates, and you don’t have to worry about PMI or MIP.
- USDA Loans
These loans are another option for low-income borrowers, especially those in rural areas. They require little or no money down as long as the properties in question meet the requirements put forth by the USDA.
Consider each of these options and determine which path best matches your status and needs.