Rate Search: Get Approved for a Home Loan
Requirements by Mortgage Type
Government Home Loans
A government home loan is a mortgage that is guaranteed by the government and offered by private lenders.
- The best mortgage for people: with a credit score below 620, Less than 5% down payment, Lower income.
FHA loans are one of the most popular types of mortgage loans used by first-time homebuyers. They have the lowest credit score requirements of any mortgage type. If you have a 500 FICO score, you can qualify with a 10% down payment. Borrowers with a 580 or higher FICO score may be eligible for an FHA loan with just 3.5% down.
The Federal Housing Administration guarantees FHA loans. You will still work with a private lender that is approved to issue FHA loans. To fund the program FHA includes a mortgage insurance premium (MIP) to your monthly mortgage payment.
There are also first-time homebuyer down payment assistance and grants you may be eligible for. You can check the HUD website to see programs in your state.
- The best mortgage for Veterans.
If you’re a Veteran, then you may qualify for a VA home loan. VA loans offer a wealth of benefits to those who are eligible, including zero down payment.
On top of getting 100% financing, VA loans don’t require mortgage insurance. No PMI means huge savings; the average homeowner saves about $2,000 per year on mortgage insurance.
- The best mortgage for people: In a USDA-approved area with at least a 620 credit score.
The U.S. Department of Agriculture guarantees mortgages in rural areas of the country for low-income homebuyers. USDA loans offer a no down payment mortgage and have low mortgage insurance fees.
When you think of the word, rural, farms, and ranches are probably among the first things that come to mind. However, the USDA eligibility map shows that over 95% of the U.S. is eligible.
FHA 203k Loans
- The best mortgage for homebuyers buying a house in need of repair. Have a 620 credit score and .5% down.
FHA 203k loans are a type of home renovation loan that funds a home’s purchase and pays for repairs or renovations on the property.
FHA loans require the property to be in livable condition, and not in need of repairs. With a 203k loan, you can buy a “fixer-upper” home in need of repairs and get the cash to make those repairs.
Conforming Home Loans
Conforming loans meet the standards to be sold to Fannie Mae and Freddie Mac on the secondary mortgage market. They are insured by private mortgage insurance companies, not the government.
HomeReady and Home Possible Loans
- Best for low-income first-time homebuyers with a 620 credit score and a 3% down payment.
Fannie Mae and Freddie Mac are the two largest buyers of conventional mortgage loans in the US. Conventional loans are the most common type of home loan used today, but they have fairly high down payment requirements making them unattainable for many first-time buyers.
- Conventional loans are best suited for people with good credit and a 20% down payment and real estate investors.
Conventional loan requirements are more stringent than government loans. They require a minimum credit score of 620 and a down payment between 5% – 20%. One of the benefits of conventional loans is that mortgage insurance is not required if 20% is put down. PMI cancels once the LTV reaches 78%.
Conventional 97 Loans
- The best mortgage for people with excellent credit and a low down payment
The conventional 97 loan is basically just like a traditional conventional loan. However, instead of needing a large down payment of 5%-20%, conventional 97 loans require just 3% down. That is lower than even FHA loans require. You will need a 640 credit score or higher. PMI is still required with down payments of less than 20%. However, PMI is dropped after the LTV reaches 78%.
Non-Conforming Home Loans
- Best for borrowers who need a loan that exceeds the conforming loan limits.
If you need a loan that exceeds the conventional loan limit in your area, you will need to get a jumbo loan. Jumbo loans are more challenging to qualify for than traditional loans because of the higher loan amount. Most lenders will want you to have at least a 680-700 credit score. Jumbo loans also require a higher down payment, usually between 15%-20%.
Super Jumbo Loans
- For borrowers who need a loan amount above 1 million.
Jumbo loans offer loan amounts up to around 1 million dollars. If you’re buying a home and need a loan for over 1 million, a super jumbo loan can provide up to 3 million dollars to purchase your home. These mortgages are even more difficult to qualify for a require excellent credit.
- Best for borrowers who cannot get approved for a conventional or government mortgage
Portfolio loans are home loans given by individual investors to high-risk borrowers. Either they have low credit scores, income that is not easily proven or are buying a type of property that is considered too risky for a traditional loan.
Fixed-Rate vs. Adjustable-Rate
Most every type of home loan program will offer the option of an adjustable-rate mortgage or fixed-rate. A fixed-rate mortgage will have the same interest rate for the life of the loan.
30-Year Fixed-Rate Mortgage
- The best term for people: Wanting the lowest mortgage payment possible
If you’re low on savings and your income fluctuates, then the lower monthly payment of a 30-year mortgage is the best option. Even if you want to pay off your loan early, you can. Just make occasional payments toward the principal balance.
15-Year Fixed-Rate Mortgage
- The best term for people: With high consistent income and a large amount of cash reserves.
With a 15-year fixed-rate mortgage, you will get a rate that is .50%- 1% lower than a 30-year mortgage. A 15-year term is best for people who have a high income that is fairly consistent and with a good amount of savings. The main thing to consider with 15-year terms is the higher monthly mortgage payment.
5-1 Adjustable-Rate Mortgage
- The best term for people who plan on staying in the home for less than 5 years or plan on paying off the mortgage within 5 years.
If you’re certain you will be staying in the property for less than 5 years, then a 5/1 ARM is a great way to save money. The initial rate for the first 5 years is often very low; after 5 years, the rate balloons to a much higher rate every year after that. However, if you’re unsure how long you’ll stay in the home, a fixed rate is probably a better option. Comparing 5-1 ARM vs. fixed rate.
Types of Refinance Loans
This is a traditional refinance of a conventional loan or an FHA loan into a conventional. This refinance loan will lower your interest rate and monthly payment. Many people who have an FHA loan will choose to refinance into a conventional loan to drop mortgage insurance.
Home Affordable Refinance Program (HARP)
The Obama Administration created the HARP program to help homeowners whose property values plummeted because of the housing market crash. With HARP, you can refinance your home loan at a lower rate even if you’re underwater on your mortgage.
Home Equity Loans and HELOC
Home equity loans and HELOC loans use the built-up equity in your home as collateral for a loan. These are also known as a second mortgage because you will have two separate payments. A home equity loan provides you with a lump sum of cash up to 80% of the market value of your home. A HELOC works like a credit card, giving you a line of credit you can borrow from as you need it. You only pay interest on the amount borrowed.
A cash-out refinance is where you refinance your mortgage and get cash out using the equity in your home. You will have just one monthly mortgage payment, and the rates are lower than they typically are with a home equity loan. You can cash out up to 80% of the value of your home with a cash-out refi.
Government home loans such as FHA, VA, and USDA also offer a refinance program. FHA streamline refinancing is a quick and easy way to refinance your FHA loan into a new lower rate. The great thing about streamline refinances is that they do not require a credit check or income verification. The process is “streamlined” and requires much less paperwork than a traditional refinance.
The Bottom Line
Choosing the right type of home loan program is not always as easy as it seems.
If you have a credit score below 620, then FHA is your best bet to get approved for a home loan. However, if your score is 620 or higher, you have many more choices available.
Finding the best home loan is very important. Finding the best online mortgage lender is just as important.
An experienced loan officer can help you navigate through all the mortgage programs to find the right fit for you.