Types of Mortgages
What is a Mortgage?
A mortgage is a loan from a bank or other financial institution that helps a borrower purchase a home and is secured by the property. Mortgages allow a home buyer to pay the balance of the contract amount over time rather than paying the entire balance up front. If a home buyer cannot pay the mortgage the property may be taken by the financial institution through which the mortgage was secured.
FHA (Federal Housing Administration)
The Federal Housing Administration is controlled by HUD (The Department of Housing and Urban Development). An FHA loan allows you to buy a home with a down payment as low as 3.5% and allows “gifts” from family members to be contributed towards the mortgage. These factors can make an FHA loan very attractive. All FHA loans have an upfront mortgage insurance premium typically financed in the mortgage. There are no income limits for an FHA loan but, loan limits do apply based on county. Franklin and Delaware counties for example have an FHA maximum base loan limit of $370,000.
The government sponsored agencies Fannie Mae and Freddie Mac define the underwriting terms for this type of mortgage. Conventional loans are very popular and make up close to 50% of the mortgage market. Typically, conventional mortgages attract those home buyers who have higher credit scores and are able to put down a more significant down payment. A conventional mortgage can require as little as 5% down payment unless you are a first-time home buyer or have not owned a home in the last 3 years. In these cases, the required down payment can be as little as 3%. It is possible with a conventional loan to avoid monthly PMI (private mortgage insurance) but, it is generally required in some way with less than 20% down. The maximum loan limit for a conventional/conforming loan in our area is $510,000. Our In-house lender, Partners United also offers second mortgage options to avoid PMI or jumbo rates for loan amounts over $510,000 (also known as non-conforming loans).
VA (Veterans Administration)
If you are a veteran of the United States military, a VA loan may be the perfect loan for you! The underwriting guidelines for these loans are set by the veteran’s administration. The benefits of VA loans include being able to purchase a home with no down payment and with no monthly PMI. The credit guidelines are also less stringent. The Veterans Administration insures all VA loans. Most VA loans require a funding fee that is typically financed into the mortgage unless you are a disabled veteran in which case, you are more than likely exempt from the funding fee.
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