But do you know what types of loans are available and which one is right for you? Let’s take a minute and look at the different types of loans so you can get yourself started down the path of homeownership.
Conventional loans are the most popular type of mortgage loan and are backed by Fannie Mae or Freddie Mac. These loans require a minimum of a 3% down payment and come with a variety of terms including fixed-rate, adjustable-rate, and interest-only options. Conventional loans also have fairly strict credit standards, requiring you to have a credit score of at least 620 in order to qualify.
FHA loans are loans backed by the Federal Housing Administration and are designed to help people with lower incomes or credit scores qualify for a home loan. FHA loans require a minimum of a 3.5% down payment, however they are more lenient with their credit requirements, allowing people with a score as low as 500 to qualify.
VA loans are loans backed by the U.S. Department of Veteran Affairs and are designed to help active military members or veterans who have served in the military and their spouses secure a home loan. VA loans don’t require any money down and come with a variety of terms and options just like conventional loans.
USDA loans are loans backed by the U.S. Department of Agriculture Rural Development and are designed to help people with low to moderate incomes buy a home in a rural or suburban area. USDA loans offer 100 percent financing, meaning you won’t be required to put any money down. However, you will need to meet certain income and other criteria in order to qualify.
Jumbo loans are loans that exceed the limits for conforming loans set by Fannie Mae and Freddie Mac. These loans usually require a minimum down payment of 20%, and also usually come with stricter qualification requirements such as a higher credit score and a larger down payment.
Now that you know the different types of loans, it’s time to decide which one is right for you. It’s important to speak with a lender to get a better understanding of your options and to help you find the best loan for you. Deciding on the perfect loan can be a daunting task, but getting educated on the different types of loans available is the first step.
In summary, there are several types of loans available to assist prospective home buyers in securing a mortgage. The most popular type is a conventional loan, which is backed by Fannie Mae or Freddie Mac and requires a minimum of a 3% down payment. FHA loans, VA loans, USDA loans, and jumbo loans are also available and are ideal for those with lower incomes, active military members and their spouses, those purchasing in rural areas, and those seeking loans that are higher than the limit for conforming loans. It’s important to speak to a lender to determine which type of loan is best suited to your needs.
This article was contributed on Dec 23, 2023