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If you have as one of your 2021 goals to buy a home, you’re in luck. Despite all of the upheaval in the home mortgage business in the past few years, there are still plenty of homes as well as loans to go around. Regardless of your plans, however, the first step in the process is getting approved. After you are approved for a loan, you can rest assured that things will get easier for you.
There are several different types of home loans available. The first thing you should do in the process is to study the requirements of each to determine which is best for you. This process can be confusing, so getting some help from Dustin Dimisa can be a good first step. This article will serve as a first introduction to the most common types of home loans.
Conventional Loans
Conventional loans are made through private lenders and are not backed by government agencies. Conventional loans are administered by two government sponsored companies, Fannie May and Freddie Mac. These companies buy most home loans from private lenders and bundle them into investments called mortgage-backed securities.
Conventional loans have more stringent requirements than do government-backed loans, which makes hem popular with those who have better credit ratings.
Credit Scores
To qualify for a conventional loan, you need to have a credit score of at least 620. The better your credit score, the lower your interest rate will be. Higher credit scores will help compensate you if you have a lower income or a low-down payment.
Down Payment
Most lenders will require a down payment of from five to 20 percent. Some may take as little as three percent.
Mortgage Insurance
With less than a 20 percent down payment, you will probably be required to purchase private mortgage insurance until you have 20 percent equity in the property.
Debt to Income Ratio
A majority of lenders want a borrower to have a debt-to-income ratio of 45 percent or less.
Income
There are no income limits for a conventional loan.
Employment
Lenders will want to see employment records from at least the past two years.
Special Conventional Loan Programs
With an income of less than or 100 percent of your area’s median, you may qualify for a HomeReady or Home Possible loan.
FHA Loan
An FHA loan is backed by the Federal Housing Administration. They are insured by the FDA and are often given to those who would otherwise be considered too risky for a loan. Anyone with a low credit score would be a good candidate for an FHA loan.
An FHA loan is backed by the Federal Housing Administration. They are insured by the FDA and are often given to those who would otherwise be considered too risky for a loan. Anyone with a low credit score would be a good candidate for an FHA loan.
VA Loans
VA loans are made available for veterans by the Veteran’s Administration. Active service members, military spouses, military widowers and widows are eligible. Since these loans are backed by the VA, they are less stringent in their requirements than other loan sources.
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