Types of Home Loans
Conventional (usually Fannie Mae & Freddie Mac)
Depending on the lender and your credit scores, down payment requirements can be as low as 1%, but typically are 3 to 5% minimum. Normally a bit more lenient as to appraisal required repairs over FHA, VA and USDA loans.
Loans insured by HUD (FHA)
- 203b – Standard home loan currently requires 3-1/2% down, and a minimum credit score of at least 580 (lender specific)
- 203k (Rehab loans) – Same as 203b, but allows you to roll the purchase price and approved upgrades/repairs to the home into a single loan. Great for homes that can be purchased below market due to condition or lack of updating.
- 184 (Native American) – Special rates and fees for Native Americans who have a tribal card and a CIB (Certificate of Indian Blood). Down payment and credit score requirements still apply. No restriction as to location of the home being purchased
Loan is guaranteed by the VA, and can be purchased with zero ($0) down. Minimum credit scores of at least 580, and must have a DD214. and have full or partial eligibility on your VA Certificate of Eligibility (COE) (VA Form 26-1880) .
Veterans may be eligible for VA guarantee home loans if:
- You have served 90 consecutive days of active service during wartime,OR
- You have served 181 days of active service during peacetime,OR
- You have more than 6 years of service in the National Guard or Reserves,OR
- You are the spouse of a service member who has died in the line of duty or as a result of a service-related disability.
USDA (Also called Rural Development)
USDA are zero ($0) down loans for qualified borrowers purchasing a property in a eligible rural area. Most of the same credit and income rules for HUD insured loans apply.
Jumbo Home Loans
Any purchase where the loan amount exceeds $417,000 ($625,000 in “high cost areas” like LA and NY) will require a “Jumbo” loan. The underwriting process for jumbo mortgages is similar to that of a conforming/conventional mortgage, except that jumbo lenders sometimes require 2 appraisals instead of just 1. Down payment requirements differ in many cases. Jumbo loans generally require higher down payments — depending on the lender, the minimum down payment could be 15%, 20% or 30% for home purchases. Many lenders require a credit score of 700 or higher, a debt-to-income ratio of 43% or less, and 6 to 12 months’ worth of reserves.
Not all lenders are created equal, although most have all or most of the above mentioned types of loans available. One big difference between lenders is their portfolio of investors to whom they can sell your loan, and/or the “overlays”, or “rules” by which they will underwrite a loan for a particular borrower. If you have an awesome credit score of above 750, a low debt-to-income ratio, and no derogatory items on your credit history, just about any lender can get you approved one or more of the different types of loans you are eligible for. In that case, you should simply shop for the best fees and rates.
However, most of us in today’s world don’t find ourselves with such a pristine credit history. Therefore, it may be necessary to “shop” your loan around to find an investor willing to loan the money. This is where mortgage bankers and mortgage brokers provide a great service. So, if you have been turned down by one of the “Big Box” lenders, or one of the “internet only” firms, don’t despair. All is not lost. While “sub-prime” loans effectively disappeared in 2008, there are lenders who work with investors that have more liberal lending rules.
In the Oklahoma City metro area, call us at (405) 547-9737 for a referral. As REALTORS, we know who the best local lenders are that can actually help clients get approved and into their new home.
For more information about mortgages, here are some additional articles you might find useful: