Narrowing down your home loan options is typically the best place to start. Sure there are mortgages that have better rates and terms than others, but if you don’t qualify for them, why waste your time.
Some of the popular loan programs offered in 2019 are FHA, VA, Fannie Mae, Freddie Mac, and USDA home loans. Of all the options, VA is by far the best. VA does not require you to pay mortgage insurance giving you an immediate advantage over other loan programs. In addition, VA has the lowest interest rates available today. But if you are not a veteran, this isn’t a realistic choice.
A Fannie Mae or Freddie Mac Conventional loan
Is the next best loan program with low interest rates and no mortgage insurance (PMI) required if you put 20% down. Conventional loans have low interest rates
and extremely low closing costs. You will typically need a credit score of 680 and 20% down to get the best Conventional loan terms.
If you have less than 20% down and are not a veteran, there are other choices that still have great terms to help you buy your first home.
USDA Home Loans
USDA home loans
are a great loan option for borrowers that do not have a down payment. The no money down USDA
loan has low interest rates and minimal monthly mortgage insurance. You will need to finance the USDA guarantee fee in the loan but with the low rates USDA offers, it shouldn’t increase the mortgage payment more than $30 a month.
The only caveat to USDA is that the home you are buying must be located in a rural area. Don’t lose hope! 97% of America qualifies for USDA. Make sure to check out our “all about USDA loans” and check your area for property Eligibility.
FHA Home Loans
FHA is also a great home loan program but falls short of the benefits of USDA, VA, or a 20% down Conventional loan.
The rates are still very competitive and FHA is one of the most popular loan programs
in the country. FHA allows for lower credit scores and a down payment as low as $100! The monthly mortgage payment will include a mortgage insurance payment so the total payment might be higher than the other programs. In most cases, FHA is the default loan program
because you don’t qualify for the other three. But don’t worry! FHA is still a great loan program. On a comparable $200,000 home, FHA’s mortgage payment might be higher than the other programs by a total of $35 a month. Not so bad for the least attractive loan program.
Conventional – Again
Conventional….. Again. The funny thing about a Fannie Mae or Freddie Mac Conventional loan is that the terms of the loan can fluctuate drastically. The credit score you have and the down payment available all plays a role in your mortgage term.
If you have a small down payment with an average credit score and your mortgage professional recommends a Conventional loan…. RUN! This is the most expensive option.
Conventional loans are great but they were not made for a low down payment borrower. You will be required to pay monthly mortgage insurance and a higher interest rate. The Conventional loans are easier to close for the salesperson and this is why some buyers get pushed into the wrong loan.
Conventional loans are not guaranteed by the federal government so Fannie Mae and Freddie Mac take on all the risk. Because of this, they price their interest rates accordingly. You can expect an interest rate .25% higher than the government home loans available with the same financial and credit profile. I am working on a comparison chart to show the differences so stay tuned.