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Continuing our mortgage loan discussion, focusing on the differences between conventional and government loans:
Conventional Loans:
Typically, conventional loans are a good option for homebuyers with a strong credit history, stable income, and the ability to make a down payment of at least 5%. Conventional loans can be used to purchase or refinance a primary, secondary or investment home.
If putting less than 20% down, there is an additional monthly cost, called mortgage insurance. The cost of mortgage insurance is based on amount of down payment and credit score- to name a few factors.
Credit scores drive interest rates on conventional loans. Higher credit scores normally receive a lower interest rate.
More options have become available for homebuyers with less than 5% available for down payment. These programs could have income guidelines and are mainly available for purchasing a primary residence.
Government Backed Loans:
Typically, government backed loans make homeownership possible for borrowers with lower credit scores and less savings built up for a down payment. Government backed loans allow for the purchase or refinance of an owner-occupied home only.
FHA loans are intended for low and moderate -income home buyers. FHA loans allow for lower credit scores than a conventional loan and lowers the down payment to 3.5%. FHA loans do have a monthly mortgage insurance cost also, but the cost is lower than conventional mortgage insurance premiums.
VA loans are available for borrowers who have served or are serving in the military. To be eligible, certain types of service and length of time served, play a role. Most VA loans allow for no down payment. VA loans do not require private mortgage insurance, but an upfront VA Funding Fee could be required.
USDA loans are for low to moderate-income borrowers to buy a single-family home in a qualifying rural or suburban area. USDA loans have low fixed rates, flexible credit requirements, and require no down payment. USDA also charges a funding fee and monthly mortgage insurance.
When considering which option is best for you-- take time to visit with an expert in the industry. Mortgage loan officers can explain the pros and cons of conventional and government backed loan products more fully and are ready to provide guidance to best fit your needs.
Donita Stubbe
Agent / Realtor
Phone: 712-427-3551
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