When it comes to buying a house, there are many loan types to choose from. Conventional fixed-rate loans maintain the same interest rate throughout the loan, and they tend to have stricter credit rating and debt-to-income ratio (DTI) requirements. FHA loans are government-backed loans that offer lenders government insurance against borrower default, and they have lower credit score requirements and allow for a down payment of as low as 3.5%. VA loans are government-backed loans exclusively for veterans, active members of the military, and select surviving spouses, and they have lower interest rates than comparable government-backed loans.
USDA loans are available for those who want to buy property in rural or suburban areas, and they have no down payment requirement. It is important to research the types of mortgages available to you in order to make an informed decision. When it comes to conventional loans, you need a credit score of at least 620 points and your DTI ratio must be equal to or less than 50% to qualify for a loan with most mortgage lenders. With an FHA loan, you must pay a mortgage insurance premium upfront, as well as a monthly mortgage insurance premium (MIP) payment.
Unlike PMI, you can't cancel your MIP payments; they stay with you until you make your last loan payment. If you make a down payment of at least 10%, you will have an MIP on your loan for 11 years. For this reason, many homeowners refinance their FHA loans into conventional mortgages once they reach 20% of their property equity. VA Loans are government-backed loans exclusively for our nation's veterans, active members of the military, and select surviving spouses.
To be considered, you must be able to submit a certificate of eligibility. A VA loan can allow you to buy a home with no down payment and can also avoid PMI payments. You'll have to pay a small VA funding fee when you get your loan, but certain veterans can get an exemption to eliminate the charge. VA loans also have lower interest rates than comparable government-backed loans, which can make them even more affordable.
You or your spouse must move into your new property within 60 days of closing to use a VA loan to buy a home. For example, you may be deployed and unable to move during that time. You must also purchase a primary residence with your loan; you can't use a VA loan to buy a second home or investment property. Homebuyers interested in buying property in rural, and even some suburban areas, may qualify for USDA loans.
For those who do, it's a very low-cost mortgage with no down payment needed. You must buy a home in an approved rural area to qualify for a USDA loan; you can use the USDA Property Eligibility page to see if the home you want to buy qualifies. Your property must also meet the USDA habitability assessment standards, which are very similar to the FHA appraisal standards, to qualify. For example, you can't buy a home with a water system that doesn't work with a USDA loan.
Your home must be your primary residence; you can't buy an investment property or vacation home with a USDA loan. You must also meet the USDA income limits for your area; use the USDA Income Eligibility Calculator to see if your income qualifies you for a USDA loan. When deciding which type of mortgage is best for you, it is important to consider all of your options and research each type thoroughly before making any decisions. Conventional mortgages are the most common type of mortgage; however, they have stricter regulations on their credit rating and debt-to-income ratio (DTI).
FHA loans have lower down payment requirements and are easier to qualify than conventional loans; however, they require mortgage insurance payments that cannot be cancelled until the last loan payment is made. VA loans are exclusive for veterans and active members of the military; they have lower interest rates than comparable government-backed loans but require that you move into your new property within 60 days of closing and purchase only primary residences with them. Finally, USDA loans are available for those who want to buy property in rural or suburban areas; they have no down payment requirement but require that your property meets certain habitability assessment standards.
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