Buying a home is filled with several decisions for a potential
homeowner, and how to finance it is one of them! So, whether it is your first home
or your 15th, team up with us here at Inhabit and figure out which
loan is right for you!
Conventional Mortgages
Conventional loans are the most popular home loans. Buyers typically receive the best interest rate due to the credit score and down payment.
Unlike an FHA loan and USDA loan, you do not pay any upfront funding fees and if your down payment is 20% or more, you will not pay Private Mortgage Insurance.
To Qualify for a Conventional Mortgage Loan, you will need a credit score of 620 or higher, and a minimum 3% - 10% down payment, depending on financial history.
There are two main types of conventional loans: fixed-rate mortgage and adjustable-rate mortgage.
- Fixed-Rate Mortgages
With a fixed-rate mortgage, your interest rate will stay the same over the life of the loan. This makes it much easier to plan your monthly budget.
- Adjustable-Rate Mortgages (ARM)
This type of loan might be attractive to buyers who do not plan to stay in their house for the long-term. It is also ideal for buyers who would like a lower rate now and are willing to refinance in the future.
For an ARM, the interest rate you pay will change after a certain period. Initially, your interest rate will remain the same for the first 3-10 years.
After the “fixed-rate period” ends your interest rate will adjust based on the current market interest rate. This means your interest rate could increase, or go down, based on the overall financial market. Most adjustable-rate mortgages come with a cap on how much the interest rate can increase each year.
FHA Loans
Popular with first-time home buyers FHA loans have lower qualifying and credit score requirements.
Buyers with a credit score of 580 or higher can qualify for an FHA loan and put down as little as 3.5% for a down payment. A credit score of 500-579 may still qualify for an FHA loan if there is at least 10% as a down payment.
The home buyer will have to pay an Upfront Funding Fee (2.25% of the total financed amount) paid when you close on the loan.
It is also important to know that all FHA loans must include Mortgage Insurance Premiums (MIP) for the life of the loan. This insurance policy, which protects the lender, is a big reason home buyers with lower credit scores and less cash to put down for a down payment still can purchase a house.
An FHA loan will cost a home buyer more money over the term of the loan versus a conventional loan, VA loan or USDA loan due to the higher interest rate and MIP costs.
USDA Loans
The USDA loan is intended to make homeownership a reality for low to moderate income families in rural areas. Only certain locations qualify for this loan, so you will need to have an address in mind when you speak with the lender.
The requirements to qualify for USDA loans include meeting income-eligibility and personally occupying the dwelling as their primary residence.
There is a 0-down payment option available and there are flexible credit guidelines, but most lenders prefer a credit score of 640 or higher.
There is an Upfront Funding Fee (1% of the total finance amount) paid when you close on the loan. As well as an annual fee, which is 0.35% of the loan and it is typically rolled into your monthly mortgage payments.
VA Loans
Of all the types of home loans, VA loans are designed exclusively for active and former military members and their families. To get a VA loan, you will need to show your lender a certificate of eligibility.
If you qualify, the loan will have no down payment required if the sale price does not exceed the appraised value. No Private Mortgage Insurance (PMI) premiums and Limited closing cost charges are benefits received with this type of loan. Interest rates are consistently lower than conventional loans and FHA loans.
You do not need to be a first-time home buyer and you can re-use the VA loan for future home purchases. Veterans Affairs has some additional details on this type of loan.
Jumbo Loans
A Jumbo Loan is for a mortgage loan that exceeds the limits set by the Federal Housing Finance Agency (FHFA) which usually includes loans above $726,200.
To qualify for a Jumbo loan, you will need to meet some requirements. A higher downpayment, 20%+ depending on the details and lender, is common for single-family units. You will also need a minimum of 680 - 760 as a credit score and a low Debt-to-Income ratio.
HOPP program from Prosperity bank
Designed to meet the needs of those with low to moderate incomes with a 0% down and No PMI requirements. Purchase or rate term refinance allowed for primary residence. There are few different options offered!
- HOPP/100:
100% financing. Maximum loan amount of $350,000.
- HOPP/97:
97% financing. Maximum Loan amount of $726,200
- HOPP/ITIN:
90% financing. Maximum loan amount of $350,000. ITIN-holders and other non-residents with a valid SSN are eligible
All financing is based on lesser of purchase price or appraised value.
Not sure which loan would work best for you? Contact one of our experienced REALTORS© to help you find your perfect loan and home!
Ready to take the next steps but want to read more? For more information check out our blog posts ‘Financing the Purchase of your Home’ and ‘A Home Buyers Checklist.’
