One of the best things you can do when deciding to buy a home is understand your options for a mortgage loan. As you will discover in this article, each loan type is very different since people have different factors that come into play. Once you understand what each loan is, you will have a much better chance of knowing the direction in which you need to go.
* FHA – An FHA loan is insured, not funded, by the Federal Housing Administration or FHA. This organization is a division of the United States Department of Housing and Urban Development, better known as HUD. FHA loans are typically designed for borrowers that fall within the low to middle-income ranges, as well as first-time homebuyers. Keep in mind that with FHA, you have some limitations on the amount of the loan, which will vary from state to state. Currently, HUD will insure mortgage loans up to $121,296 where home prices are somewhat low and up to $219,849 where housing prices are high. The nice thing about an FHA loan is that the standards are relatively more relaxed for qualifying than other types of loans. Additionally, an FHA loan can be secured for a 15 or 30-year fixed loan, along with a one-year adjustable loan.
* Conventional – With this type of loan, money is not directly insured by the Federal government. Known as the traditional type of loan, most of these cover home prices under $275,000, which are handled through Fannie Mae or Freddie Mac, which are private corporations that must follow specific government regulations. If the amount of the loan were greater than $275,000, it would be called a “jumbo loan” and funded by the private investment market.
* VA – This Veterans Administration home loan is for individuals that are qualified by the military service. In this case, the VA would insure but not fund a 15 or 30-year fixed loan, along with a one-year adjustable loan. Additionally, VA loans require less, down payment, sometimes all the way to zero. Then, the qualifying ratios for a VA loan are usually more flexible and lenient.
* No Document – This type of mortgage loan is great for people who are self-employed, individuals that prefer not to verify income, or for people with a short, less than perfect credit history, or even no credit. This type of loan offers a number of benefits to include a much shorter application process since no documentation for employment, income, assets, and so on are required. In addition, without the need for verification on the lender’s behalf, the approval process is simpler. Just keep in mind that a “no document loan” is not offered by all lenders and you would likely pay a higher interest rate.