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Lauren Wellbank Lauren Wellbank Lauren Wellbank is a freelance writer with more than a decade of experience in the mortgage industry. Her writing has also appeared on HuffPost, Washington Post, Martha Stewart Living, and more. When she's not writing she can be found spending time with her growing family in the Lehigh Valley area of Pennsylvania.
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Just like moving into a new home, reading about all of the different lending options can leave you with a lot to unpack. Robert Kirkland, vice president of divisional community and affordable lending manager at Chase Home Lending says deciding which loan program is best for you is usually a choice best left to the pros.
“Not all mortgage products are created equal. Some have more stringent guidelines than others,” he explains. “Some lenders might require a 20 percent down payment, while others require as little as 3 percent of the home’s purchase price.”
Deciding which program is right for you will depend on things like your income, credit history and score, employment, financial goals, and of course, what your lender offers. Here are a few kinds of mortgage products and what you should know about them.
FHA Mortgage
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration, explains Kirkland. “This loan program is popular with many first-time homebuyers,” he says, adding that FHA home loans require lower minimum credit scores and, in some cases, lower down payments, with the average down payment hovering somewhere around 3.5 percent. This program is designed to help people who might not otherwise qualify for a traditional mortgage.
USDA Mortgage
A USDA loan, which is backed by the U.S. Department of Agriculture as part of its Rural Development Guaranteed Housing Loan program, can be a wonderful homebuying option for rural communities, according to Gwen Chambers, a mortgage loan originator with Motto Mortgage Superior in Germantown, Tennessee. These programs can offer up to 100 percent financing, with the ability to obtain seller-paid closing costs of up to six percent of the purchase price.
“The rates on USDA loans are often very competitive and the fees are relatively low,” Chambers explains. “In my community, consumers often find USDA loans to be their go-to loan of choice.”
Not everyone qualifies for a USDA mortgage, though — there are population and median income requirements that only certain areas are able to meet. You can determine if you’re eligible here.
Conventional Mortgage
A conventional loan is a type of mortgage loan that is not insured or guaranteed by the government, but instead is backed by private lenders. In other words, it’s the kind you can apply for from your bank.
“A conventional mortgage can further be broken down into either ‘conforming’ or ‘non-conforming,’” according to Scott Bergmann with Realty ONE Group Sterling. “A conforming loan follows the lending rules set by Fannie Mae and Freddie Mac.” This means it operates via standards set by the government. There are guidelines that regulate how big your loan amount can be, but allow lenders a little bit more wiggle room when it comes to credit scores.
A non-conforming loan, on the other hand, does not follow the rules of set by Fannie Mae and Freddie Mac. Bergmann says this makes them more beneficial for homebuyers who have previously owned property but may not meet guidelines put forth by Freddie Mac or Fannie Mae. These loans can allow borrowers to take out bigger loans (much higher than the $548,250 cap set for most states in 2021), but interest rates are normally higher. This is because non-conforming loans generally come with a little more risk for the lenders.
VA Mortgage
A VA loan is a zero-money-down mortgage option available to veterans, service members, and select military spouses, explains Kirkland. “VA loans are issued by private lenders, such as a mortgage company or bank, and guaranteed by the U.S. Department of Veterans Affairs (VA).”
If you’ve served in the military and are looking to purchase a home, Bergmann says you should see what Uncle Sam can do to help you along. “Interest rates are often very comparable to that of an FHA loan which are often the lowest available,” he says.
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