What mortgage loan is best for you?
Unless you can buy a home entirely in cash, finding the home of your dreams is only half the battle. The other half is putting yourself in the best mortgage possible! Most mortgages are paid back over a 30-year period, so it is important to find a loan that meets your budget and needs. No one wants to be house rich, cash poor. Here are the most common types of mortgage loans.
Conventional – Fannie Mae/Freddie Mac
A conventional mortgage is a mortgage that is not backed by the federal government. These loans are purchased by Fannie Mae or Freddie Mac, two government-sponsored enterprises. In most cases, you will need a credit score of at least 620. First time home buyers can potentially put a minimum of 3% down. If you have owned a home in the past 36 months, the minimum down is 5%. At 20% down, you no longer have private mortgage insurance (PMI).
FHA
An FHA mortgage is a mortgage insured by the Federal Housing Administration. These loans are excellent for lower credit scores, as well as low-to-moderate income earners. Generally, FHA loans can go be approved at a 580 credit score. The minimum down payment is 3.5%.
VA
A VA mortgage is a mortgage that is backed by the Department of Veterans Affairs. For these loans, you must have VA eligibility. This is determined case by case by the VA using a copy of the Veterans DD214. Technically, the VA does not require a certain credit score. However, most lenders generally require a minimum credit score of 600.
Portfolio
Portfolio mortgages are loans that the lender plans on holding and servicing for the duration of the mortgage. Since the lender is holding the loan for the entire duration, these loans have more flexible criteria to qualify. However, the rates and fees are normally higher than a standard mortgage product.
Private
Private mortgages are loans that are funded by private investors. They will have much riskier features, higher rates, and higher fees than a traditional mortgage. However, they can be excellent for borrowers in certain situations.
HELOC
HELOC stands for a home equity line of credit. This is a second mortgage that is based on the amount of equity a person has in their home. Generally, these loans have a 5-10 year withdraw period, followed by a 10–20-year repayment period. Another big change from a traditional mortgage is that these loans almost always have a variable interest rate.
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