What Loan is Right for You?
When deciding on what kind of loan to choose, it is important to be aware of the different types of loan programs that are available to you. There are three main types of loans that are used when mortgaging a home, which are Conventional, FHA, and VA loans.
Conventional Loans:
Conventional loans are typically backed by private investors and work under established guidelines as determined by Fannie Mae. Conventional loans offer the widest variety of loan programs available and are based on the strength of your credit and the amount of your down payment. Most qualifications for any conventional loan program are driven by your FICO/credit score.
FHA / VA Loans:
FHA and VA loans are loan programs insured by the Government. FHA is backed by HUD, and VA is backed by the Veterans Administration. Have you ever heard of a HUD home? HUD homes are FHA loans that went into foreclosure, whereas the lender or bank loans the money to the borrower, and if the borrower fails to make the payments, HUD pays off the lender and repossess the property. A similar process takes place under VA loans.
Most Lenders will recommend programs to you based on your down payment. Typical recommendations are as follows:
Yes, you can buy a home with no money down!
VA: The oldest form of nothing down financing. Simply put, if you are or were a member of the Armed Forces for 180 days or longer, you can finance a home for up to $240,000 with no money down.
FHA Programs : There are a number of different programs that work in conjunction with FHA that will allow you to finance your home with no down payment:
- The City of Longmont Down Payment Assistance Program , where they will loan you the down payment and closing costs. Call (303) 651-8530 or check out their website athttp://www.ci.longmont.co.us/cdbg/housing/chdpa.htm .
- CHAFA, or the Colorado Housing and Finance Authority , offers home ownership mortgages to qualifying low- and moderate-income Colorado individuals and families. For more information on CHAFA, click on their website at http://www.colohfa.org/, or call (800) 877-2432.
With 3.5% down, the recommended loan is a traditional FHA loan where the bank loans you the money and HUD guarantees the loan. It is the easiest to qualify for and requires the least amount of down payment and customary buyer’s closing costs. The rate will be consistent with any conventional fixed rate loan, and FHA has the most conservative/safest adjustable rate.
Conventional loan, fixed or adjustable, still offers a wide variety of programs, but will be somewhat limited because of the amount of the down payment. May also require private mortgage insurance, or PMI.
Conventional loan, larger variety available than 5% down. This may include investor loans. This may also require private mortgage insurance, but will be less PMI then the 5% down.
If you have 15% down, it is in your best interest to choose conventional financing. There is a large variety of conventional financing available. 15% down may still require private mortgage insurance, but will be less then 10% down PMI .
Putting 20% down typically gives you the best conventional financing terms available. 20% down offers the widest variety of loan programs to include investor loans & stated incomeloans , and does not require mortgage insurance of any type.
There is also the question of what kind of rate you would like: Please check out Steve ‘s Glossary of Terms for information on these rates:
Fixed rates
Adjustable rate
Interest only
Negative Amortization
Pre-payment