Mortgage Loans
A mortgage is an agreement between a lender and a person wanting to buy a home. The agreement says that the lender can take the property if the buyer fails to make the payments as they should. Mortgage loans can also be used if you already own your property but wish to borrow money against it.
Mortgages are typically provided by lenders such as banks, credit unions, and online lenders and usually have a term of either fifteen or thirty years. You usually must have a FICO credit score of above six hundred to be able to qualify for a mortgage loan. If you would like to talk to someone about a mortgage, you can check online with SmartFi Loan and see what they can do for you. They provide mortgage loans for you, as well as other loan products.
There are different types of home mortgage loans, some are government backed and others are backed by private lenders. All these loans are good loans, but some cater to people who have difficulty getting loans. The list below will go into some details about the different types of mortgage loans.
Conventional Loans
A conventional loan is a loan that is not backed by the government, nor does it have the guarantees of a government backed loan. The conventional loans come in two types: conforming and non-conforming.
A conforming loan conforms to all the standards set forth by the Federal Housing Finance Agency, or FHFA. They must conform to credit size, debt limit, and loan size to be conforming loans. The loan limits for a conforming loan are up to about nine hundred seventy thousand dollars.
A non-conforming loan is a mortgage loan that does not have to conform to FHA loan standards. They can be for larger homes or for people who have lower credit scores. They are also good for people who have gone through bankruptcy.
There are some good things about conventional loans such as being able to be used as first loans, second mortgages, or multiple homes. They are also good because the overall cost can be cheaper than other loans and you can have your PMI insurance when you have paid twenty per cent of your loan. You can also pay as low as three per cent down and have the seller help you to pay closing costs.
There are bad things about having a conventional loan, as well. To get a conventional loan you must have a credit score of at least six hundred twenty. You also must give a higher down payment than loans backed by the government. Your debt-to-income ratio needs to be as high as fifty per cent, and you will have to pay PMI insurance if you down payment is not at least twenty per cent of the purchase price. You will also need a lot of paperwork to document your income, employment, and down payment.
Government Backed Loans
Although the United States government does not provide the loans themselves, they do back certain loans. There are three main types of government backed loans outlined below.
FHA loans are one type of mortgage loan that is backed by the government. These loans are backed by the FHA and allow people with lower credit scores to be homeowners. You need to have a credit score of at least five hundred eighty and only need to put a down payment of three and a half per cent. If you can make a down payment of at least ten per cent your credit score can be as low as five hundred.
USDA loans are another type of government backed loan, that is backed by the USDA. They are loans meant to help people who are lower income and live in rural areas that are approved by the USDA. You have to meet certain income limits to qualify for these loans and some of these loans do not require a down payment at all.
VA loans are loans that are backed by the Veteran’s Administration and are for people who are in the military or have served in the military. You do not need a minimum credit score, a down payment, or necessarily have to pay closing costs. If you do have closing costs, they are capped, and the seller may also pay them.
There are pros and cons to having a government backed loan, and the pros are that you can possibly get a loan when a conventional lender will not help you and the credit requirements are not as strict. Also, you do not need a large down payment and you do not need mortgage insurance and if you do a VA loan, you do not even need a down payment at all.
The cons to a government backed loan is that there can be more restrictions than other loans. Another con is that you must live in the home, it cannot be an investment home. Also, you may have to provide more documentation to prove that you qualify.
