[Replay] Deciphering Mortgage Loan Options, Part I

February 22, 2022 by gjsturm88 1 Comment

For those with the New Years Resolution to purchase a new home in 2022, we’ll revisit some of our past posts on the Five C’s (criteria that lenders use), and different mortgage loan options. This week, we’ll begin our discussion on different mortgage loan options.

Over the next three weeks, we’ll talk about different mortgage loans – conventional, FHA, VA, and USDA – what they are, what you need to qualify, and the pros and cons of each.

It’s not hard to get overwhelmed with all of the terms and acronyms related to the homebuying process. You may ignore the differences in mortgage loan types figuring a mortgage is mortgage. However, there are some distinct differences between these mortgage loans which are important to you as a homebuyer.

Let’s start with what these four loan types are.

Conventional loans are mortgage loans that are not backed by a government agency. While many conventional loans follow lending rules set by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, Fannie Mae and Freddie Mac, respectively, they are originated by private mortgage lenders, generally banks or credit unions.

Now let’s talk about the three major government-backed loans.

The FHA, or Federal Housing Administration, provides mortgage insurance on loans made by approved lenders. Unlike VA loans, they are not restricted to members of the military community, and unlike USDA loans, there are no income limits nor any requirements in terms of rural locations. However, the mortgage must be for the borrower’s primary residence, so FHA mortgages cannot be for investment or rental property, and there are limits to how large the mortgage can be.

VA loans, which are backed by the U.S. Department of Veteran Affairs, are eligible for certain members of the military community, and are one of the only mortgage loan types that do not require a down payment or mortgage insurance.

USDA loans, which are insured by the U.S. Department of Agriculture, are mortgage loans available to low-to-moderate income homebuyers looking to purchase a home in an eligible rural area, and along with VA loans, are one of the few mortgage loan types that do not require a down payment.

We’ll be back over the next two weeks to discuss the pros and cons of each of these mortgage types!