Are you preparing to buy a home and need to select a mortgage? If so, you may feel overwhelmed by all of your different options. Here is what you need to know about the types of loan programs out there.
Conforming Loans
You're likely familiar with conventional loans already, which can be broken down into two types of categories.
Conventional
A conventional loan meets the qualifications to be purchased by Fannie Mae or Freddie Mac. If you get a loan from a local lender that is conforming, it's possible that your loan can be bundled and sold to Fannie Mae and Freddie Mac while your lender continues to service the loan. This is going to be your traditional 30 or 15 years mortgage with a fixed rate, adjustable-rate mortgages, and loans with standard terms that will be the same with all lenders.
Government
There are also government loans, which programs such as FHA loans, VA loans, and USDA loans. FHA loans are provided by the Federal Housing Administration, which allow you to buy a home with a low down payment. VA loans are provided to service members and their families so that they can buy a home with potentially no money down if necessary. USDA loans are for rural property owners, and backed by the US Department of Agriculture. All three loans will have the same terms no matter where you go, just like conventional loans.
Non-Conforming Loans
Non-conforming home loans will fall into two basic categories.
Qualified Mortgages
The prime example of a qualified mortgage would be a jumbo loan. This is when a loan meets most of the requirements for a conventional mortgage, but the mortgage amount exceeds the limits allowed. A jumbo loan allows you to get a mortgage with very similar terms, but for a higher amount. The lender may view this loan as a higher risk though, because they cannot sell it to Fannie Mae or Freddie Mac.
Non-Qualified Mortgages
Everything else will fall under a non-qualified mortgage. There is usually something about these loans that would cause them to be disqualified from being conventional loans. This includes having a term that is more than the standard 30 years, purchasing more than the allowed mortgage points, getting a loan where you only pay interest, or simply having a high debt-to-income ratio that disqualifies you from a conventional loan.
Reach out to a mortgage lender for more information about loan programs.
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