There's a pool of information out there about home buying loans that's so deep it can be easy to drown. So here's the skinny on things to help keep it as simple as possible:

Loans generally fall into 2 categories 1. "Conforming Loans" and 2. "Jumbo Loans". Conforming loans are those that meet the underwriting guidelines of Fannie Mae or Freddie Mac which are the two government corporations who purchase and sell mortgage-backed securities (MBS). These fall within the size limits and "conform" to the pre established criteria. Jumbo loans are basically exactly what they sound like: loans of a larger amount. These carry a higher risk for lenders and typically require stellar credit and larger down payments. The interest rates tend to be higher on these loans also. 

As far as the types of loans, there are a few different options that are geared to work towards a wide range of financial situations for borrowers. Each have their pros and their cons, just like with anything in life, however, if the end result is getting you into a home of your own, its not all bad. We'll begin with conventional loans: To qualify, you must have a minimum credit score of 620, a minimum down payment of 5-20%, and your maximum debt to income ration must be at 43% or below. Lenders look for well established credit scores, solid assets, and a steady income in those applicants who are looking to get approved. For those who are not quite able to cough up a 20% down payment on their new home, they are required to pay private mortgage insurance which normally ranges from .3% to 1.15% of the home loan. However, if 20% is put down, this extra insurance is not expected of you. Conventional loans offer the ability to lend more money to buyers because they aren't restricted to county limits and on average are processed faster than FHA loans.

FHA (Federal Housing Administration) loans are better known for their availability to help those who aren't as financially fortunate as others. There are more slack guidelines that are required such as a minimum down payment of 3.5%, a credit score of 580 or above ideally (however, under certain circumstances will loan to those with a lower score), and a debt to income ratio of 50%. They are great for first time homebuyers or for people without great credit or a bunch of extra money laying around to put as a down payment. FHA loans are insured by government agencies so it guarantees that lenders won't lose their money if borrowers default on their mortgage which in turn allows lenders to take a chance on riskier borrowers. The down side to these are that they are capped at $417,000 or $625,000 in higher costing areas. You also are required to pay upfront mortgage insurance premium which is about 1.75% of loan, and in addition, pay an annual mortgage insurance (.85% of loan) until it is paid off entirely. 

VA (Veteran's Affairs) Loans are those that are reserved for members of the military and their families. Its somewhat similar to an FHA loan therein that it is guaranteed by the federal government. Borrowers can receive 100% financing for purchase of their home, meaning they are not required to have money to put towards a down payment. There are no specifics for credit scores, though a 620 or higher is preferred, and the debt to income ration should be 41% or lower (though exceptions are sometimes made). These loans can only be given to those who are looking to use the home as their residence and cannot be used for vacation homes or an investment home. VA loans have a slight tighter policy on appraisals: the home must be worth the amount agreed to pay for and cannot exceed the VA loan for the county. 

USDA (United States Department of Agriculture) /RHS (Rural Housing Service) Loans are a program that is available for those "rural residents who have a steady, low, or modest income and yet are unable to obtain adequate housing through conventional financing". To qualify, your income must be no higher than 115% of the adjusted are median income. These loans are normally helpful, but not limited to, police officers, teachers, firefighters, etc.

Now that the more common types of loans have been addressed, what comes next is the different options of interest rates: fixed and adjustable rates (which include hybrid rates). Fixed rates are just that: Fixed. They don't move, they don't alter. They are predictable, as in you know what you are going to be paying month to month for your mortgage. These work better for those who are planning on staying in their home for a long time and first time buyers. Adjustable rates will change from time to time, typically annually. The hybrid rate falls into this category because it will be fixed for the first few years of the loan and then change from year to year. Generally the fixed rate is slightly lower for the first few years of the loan. It does have an interest cap that it can't go above to help protect owners. These loans are normally better for those who don't plan to stay in their home for long, such a military families.

Those are the bullet points of most of the loan qualifications and specifics. They are all there to help ensure different people who are in different situations find a way to get approved for a home loan that will work best for them. They all have advantages and disadvantages but as I stated before, if in the end, you have a home to call your own, you have at least something to feel grateful for. 

 

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