Understanding the Subtle Differences in Various Mortgage Loans
Getting a mortgage to purchase a home can be a little confusing. There is so much industry lingo that loan officers use like “terms” and “conforming” or “government loan” or “eligibility.” Let’s look at the most common types of loans side-by-side in order to understand each one a little bit better.
Conventional
|
USDA
|
VA
|
FHA
|
Reverse
|
|
Credit scores
|
Excellent – Typically scores of 720 or
higher |
Typically a score of 620 is needed
|
No certain credit score required;
various criteria are reviewed to determine credit worthiness |
Usually, credit score of 620 is
needed.Slightly lower scores can get approved with significant explanations and documentation |
No Credit score requirements
|
Down Payment
|
Minimum 5% of the purchase price; can
be 10% |
No down payment if home appraises for
more than sales price. |
Not required
|
3.5% of purchase price; down payment
money can come in the form of gift from relative |
No down payment needed
|
Income
|
Typically high income compared to other
loans |
Income may not be higher than average
for the area |
Debt to income ratio may not exceed 41%
|
House payment cannot be higher than 31%
of gross monthly income; all debt, including house payment, cannot be more than 43% of gross monthly income |
No income requirement
|
Eligibility
|
Most people that meet the above
requirements will be eligible. |
Home must be in designated rural area
|
Veterans as well as people currently
serving; surviving spouse of a veteran; members of Guard and Reserve |
Most people that meet the above
requirements will be eligible. |
Borrower must own home and be at least
62 years old. Home should be paid off or have very low mortgage balance. |
Mortgage Insurance
|
Required if less than 20% down payment
|
Not required
|
Required if less than 20% down payment
|
Not required since the loan is usually
at or below 80% of home’s value |
As the chart illustrates, each kind of loan has its advantages. Choosing a loan will depend on your current circumstances. However, there are a few more considerations besides the type of loan. The most important of these considerations are the terms and picking a interest rate that is either fixed or adjustable.
Term
Term simply refers to the length of a mortgage in years. Mortgages range from 5 years to 30 years and move up in increments of 5. Obviously, the shorter length will result in a higher payment but it also means you will pay less interest over the duration of the loan.
ARM
Adjustable Rate Mortgage or ARM refers to a loan that offers an interest rate that can change. Most of the time the interest rate will be set for a pre-determined amount of time such as 1 to 7 years. At the end of the “fixed rate” period the interest rate can adjust. The rate will be based on a particular index and will adjust either once a year or once every 6 months.
All of the loans mentioned in the chart above can be offered with various terms and with either fixed rates or an ARM. Talking to a mortgage lender will provide you with the most current interest rates, available terms and payment options to fit your circumstances.
Original Post - Differences between Mortgages
This communication is provided to you for informational purposes only and should not be relied upon by you. Rock Realty is not a mortgage lender and so you should contact a lender directly to learn more about its mortgage products and your eligibility for such products.
Mortgage Loan Articles/Information
FHA
- Getting Approved for an FHA Mortgage
- HUD/FHA $100 Down Payment Program
- Which Mortgage? FHA 203K or HomePath Loan
- Using FHA 203K Loan to Purchase a Fixer-Upper
No comments:
Post a Comment