Which Mortgage Program is Best For You?

Mortgage lending is a complicated business. There are literally thousands of pages of regulations that govern this industry, and in accordance with those regulations, the governmental agencies like FHA, VA and  USDA have created programs and guidelines for consumers. What I'm basically trying to say is your average "Joe" is not going to know what mortgage program is best for him and his particular situation simply because it can take years (even decades) to truly understand this world. 

That's why you can't base your decision on what your uncle tells you is best, or your buddy up the road. They may can provide what their experience was like, but they can't direct you in what mortgage program is best for you. It's kind of like asking an electrician questions about your plumbing. They may know a thing or two about plumbing, but it's not their area of expertise. 

When you are in the market to buy, be sure to work with an actual mortgage professional, one that is licensed to conduct mortgage business! We are well educated in loan programs and regulations to help consumers navigate these difficult waters. 

Let's talk about the various programs and which might be a good fit for you:

1. FHA loans - Behold the all powerful, FHA loan! Created for credit challenged borrowers with higher debt to income ratios and possibly needing a low down payment. FHA loans typically require a minimum of 3.5% down. However, they can be coupled with a down payment assistance loan so that you could potentially come to the table with 0% down. The credit score requirement is a bit lower than a conventional product. Typically, 620 is the lowest credit score allowed for automated underwriting approval. Manual underwriting can go lower with some lenders. The lowest I have seen is 500 FICO median score requirement. But be advised, these low credit scores will require larger down payments and some other compensating factors for approval.  This program is a good choice for first time homebuyers, credit challenged individuals, or people with higher debt to income levels. 

2. VA loans- I love VA loans! Made for veterans of course, these loans are up to 100% financing for qualified applicants. The credit score requirement is 620 as well, but the debt to income ratio levels are set a bit lower than FHA in most cases. If you are a veteran, I highly recommend checking with your mortgage loan officer about going this route first. There are a few challenges with VA loans, but they are worth it in the end. 

3. USDA loans- The US Department of Agriculture created this loan product to help rural families achieve home ownership. The requirements are similar to FHA loans, but with lower debt to income limits. The beauty of USDA loans is 100% financing. They are only available in rural areas and to people below certain income limits. Check with your mortgage professional to see if you could qualify for this amazing product. 

4. Conventional Loans- As their name states, these considered the standard loans. They can allow as little as 3% down (but not always) and their debt to income levels are a bit lower than FHA, and credit requirements are more stringent. Borrowers can typically qualify with a 620 score, but this product may not be the best fit for them with credit scores below 700. Again, a mortgage professional can help determine this. Why would someone choose this over an FHA loan? Usually because underwriting guidelines are a bit easier to deal with, less paperwork, and the appraisal guidelines are less restrictive than FHA.  There is also the fact that MIP (mortgage protections insurance) is not required on a conventional loan. 

5. Non QM Loans. This is where it gets really fun! I'm sure most of you are rolling your eyes now. Non QM stands for non qualified mortgage. Basically, this is the category that all of the other mortgage products fall into. These are created for the folks that can't qualify for conventional, FHA, VA or UDA for one reason or another. It could be income requirements are challenging because of self employment, or the applicant's citizenship (or lack of). There are a host of things that can cause someone to fall into the non QM category. The good news is there are TONS of programs out there for individuals that need a different route. 

That is birds eye view of mortgage programs. It would take me days to really cover each one, so I won't! 

If you are unsure of which program might be best for you, book a call with me!

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If you are a realtor and have questions about mortgage programs, book a call with me!

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