Your search may yield several types of mortgages, and each one comes with pros and cons. Finding the right type of financing will help you better afford the home you want. Conventional loans are split into two categories: conforming and nonconforming loans. Conventional conforming loans meet the regulations for sale to Freddie Mac or Fannie Mae. Conventional nonconforming loans, on the other hand, don’t satisfy these guidelines.Conventional 30-Year Fixed-Rate Mortgage
Because of the diversity of rules, conventional loans don’t have a set list of qualification requirements. However, they usually have stricter rules than government-backed loans, like FHA loans. Typically, you need a minimum credit score of 620 and debt-to-income ratio (DTI) of 50% or lower.
Conventional loan interest rates vary daily, but they’re usually slightly higher than rates on VA, FHA and USDA loans, which, again, are all government-insured.
FHA 30-Year Fixed-Rate Mortgage
The Federal Housing Administration, which works under the Department of Housing and Urban Development (HUD), guarantees FHA loans. So, the FHA protects the owners of your mortgage in case you default on the loan.
With some lenders, you can qualify for an FHA loan with a down payment as small as 3.5% and a credit score of 580. Your lender may also want evidence of steady employment and a debt-to-income ratio below 50%. While FHA loans tend to be fairly accessible, you’ll have to pay mortgage insurance if you finance your home purchase with an FHA mortgage.
VA 30-Year Fixed-Rate Mortgage
A VA loan is backed by the Department of Veterans Affairs (VA), so it poses less risk to mortgage investors. You’ll need a VA Certificate of Eligibility (COE) proving you qualify, though. Active-duty military members, veterans and surviving military spouses are eligible if they meet certain requirements.
VA loans have generally lenient borrowing terms (including credit requirements), low interest rates and no minimum down payment requirement. Borrowers also don’t have to pay mortgage insurance. However, keep in mind that terms and rates vary among lenders.
