Mortgage types and descriptions

Conventional Mortgages

  • Conform to Fannie Mae/Freddie Mac guidelines with regard to determining credit worthiness of lending.
  • Typically require higher qualifying FICO credit scores.
  • Rates of interest tend to be higher on average because they are not government insured.
  • Does not need to be your primary residence to receive funding.
  • Can come in many forms such as construction loans or rehab loans.
  • Max income limits may apply for certain programs, typically those meant to assist first time home buyers.
  • Max loan to value is typically less, whether for reducing your payments or getting equity from the home.
  • Monthly Mortgage insurance can be applicable depending on the total loan to value.
  • More stringent debt-to-income ratio requirements can be more flexible with compensating factors.

Learn more about conventional loan programs here: http://www.fanniemae.com/portal/index

FHA Mortgages

  • Conform to HUD (Housing and Urban Development) guidelines with regard to determining credit worthiness of lending.
  • Typically allow the lowest FICO credit scores for qualifying purposes, sometimes as low as 500 with compensating factors and approve the eligible underwriting determination.
  • Rates of interest tend to be lower on average because they are insured by the federal government.
  • Except for a few specific circumstances you may only have on FHA home loan as they are meant to only be insured against primary residences.
  • Can be used draw equity, rehab, and lower the payments on your home.
  • Offers the ability to “streamline” the refinance of your home if you have an existing FHA loan, this eliminates, appraisal, debt observation (except for the mortgage), and income qualification for the approval process.
  • No Max income limitations.
  • Higher loan to value than Fannie/Freddie products for all purposes.
  • Up front mortgage insurance and monthly mortgage insurance are applicable and go to FHA to help insure against default.
  • More relaxed debt to income calculations.

Learn more about FHA loan programs here:  https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/fharesourcectr

VA Mortgages

  • Conform to HUD (Housing and Urban Development) guidelines in conjuncture with the department of veterans affairs with regard to determining credit worthiness of lending.
  • Qualifying FICO credit scores can vary depending on the lender, but are similar to FHA that they can be lower than average, typically 560 is the cutoff.
  • Rates of interest tend to be lower than FHA for the reason of them being government insured and in conjuncture with the fact they are only offered to a select population group: Members or veterans of the armed forces.
  • While VA home loans are intended for primary residences only you may have multiple VA home loans if your entitlement allows for it. Entitlement is a calculation and its limit is based in part on the loan amount and is reduced by any outstanding VA loans.
  • No Max income limitations.
  • Can be used draw equity, rehab, and lower the payments on your home.
  • Similar to FHA the ability to “streamline” the refinance of your home if you have an existing VA loan, this eliminates, appraisal, debt observation (except for the mortgage), and income qualification for the approval process. This is known as an Interest Rate Reduction Refinance Loan or (IRRRL).
  • Highest loan to value for consumer residential mortgage at 100% of the property’s value.
  • Up front mortgage insurance known as the “funding fee” may be applicable and vary in percentage depending on military member’s status, previous use of entitlement, and any service connected disability.
  • No monthly mortgage insurance, unlike FHA.
  • More stringent debt to income calculations, but can be flexible depending on any compensating factors.

Learn more about VA loan programs here:  https://www.benefits.va.gov/homeloans/

USDA Mortgages

  • Conform to HUD (Housing and Urban Development) guidelines in conjuncture with the United States Department of Agriculture with regard to determining credit worthiness of lending.
  • Qualifying FICO credit scores can vary depending on the lender, but are similar to FHA that they can be lower than average, typically 600-620 is the cutoff but below 600 is possible with compensating factors.
  • Rates of interest tend to be on par with FHA but can sometimes be lower for the reason of them being government insured and in conjuncture with the fact they are only offered to a select population group: those that live in more rural areas where income levels tend to be lower on average.
  • Unlike the other mortgage types mentioned USDA does impose a maximum income limit for households applying for home loans. This limit is determined based on the average median income for the area the home resides in and accounts for income from all individuals living in the household.
  • Along with income, there are also geographic restrictions that limit USDA financing for homes that reside in eligible areas.
  • Like FHA & VA these loans are meant to be for the purposes of purchasing a primary residence, although you cannot have more than one USDA insured home loan in your name.
  • USDA loans are meant for the purposes of acquiring and reducing the payments on your home loans, you cannot draw equity from the property with a USDA loan.
  • USDA has a “streamline loan” like FHA and VA; this would be the only other use of a USDA loan besides the initial acquisition of the home.
  • Upfront and monthly mortgage insurance are applicable, but they are lower than FHA and VA with the exception of monthly mortgage insurance on VA loans since they have none.
  • More stringent debt to income calculations than FHA and VA but can be flexible depending on any compensating factors.
  • As with VA loans, USDA has the highest loan to value for consumer residential mortgage at 100% of the property’s value. Any upfront mortgage insurance is financed on top of the base loan amount just like VA (over the 100%).

Learn more about USDA loan programs here:  https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do