Mortgages are the main method for financing real estate properties. Shopping for an ideal mortgage can be confusing due to the diversity of the programs. All mortgage programs operate on the same principle, but they differ in terms and conditions. Understanding these differences increases the chance to select the ideal loan program. Below are the most common loan programs you are likely to encounter in the mortgage industry.
Mortgage Loan Programs
Mortgage lenders offer different loan programs. These lenders include retail banks, mortgage banks, and credit unions. A lender may decide to provide one or more mortgage programs. However, a full-service mortgage lender offers all mortgage facilities available in the market.
Importantly, mortgage programs vary depending on interest rates and repayment duration. Ideally, the interest rate can be fixed to a 30-year or 15-year repayment duration. Conversely, an adjustable-rate mortgage starts with a fixed rate and then assumes an adjusting interest rate.
The following are the main mortgage loan programs:
Government-backed Mortgages
Government-backed mortgages are loans insured by the government. The three types of government-backed loans include FHA, VA, and USDA mortgages. The Federal Housing Finance Agency (FHFA) backed loans are designed to cater to borrowers with low finances. Notably, FHA loans attract a low down payment of 3.5%, a credit score of 580, and mortgage insurance. The Department of Veterans Affairs (VA) backed loans are accessible to military personnel, veterans, and surviving spouses. Lastly, the U.S. Department of Agriculture (USDA) insured loans target income-qualified rural buyers. Ultimately, government-backed mortgages are easier to access due to lower qualification requirements.
Conventional Mortgages
A conventional mortgage has no insurance from the federal government. Federal insurance protects mortgage lenders in case borrowers default the loan. Thus, conventional mortgages require a down payment of at least 3% and a credit score of 620. This pre-qualification requirement helps lenders to manage associated risks.
Conforming Mortgage vs. Non-Conforming Mortgage
The difference between conforming and non-conforming mortgages depends on government insurance on the mortgage. A conforming loan meets the local loan limits set by the Federal Housing Finance Agency (FHFA). More so, the loan must meet the guidelines of Fannie Mae and Freddie Mac. In practice, borrowing a conforming loan sets a limit to how much you can borrow. In comparison, non-conforming loans do not conform to the FHFA loan limits.
Custom Loan Programs
Custom loan programs are designed to meet the specific needs of a borrower. In this case, the mortgage lender focuses on understanding the borrower's financial position. Then, they explore all aspects and options to deliver a customized mortgage. Therefore, custom mortgage programs are more customer-oriented since they avoid the one-size-fits approach.
Ultimately, the mortgage industry has a loan program for everyone who qualifies. However, these programs differ in the qualification criteria. It is advisable to consult a mortgage lender to learn more about the available loan programs.
Share26 April 2021
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