The Sorts Of Home Mortgages You'll Find For Your New Home

By Jane H Bennett.

Good credit is important to almost everyone because most people cannot pay cash upfront for one of their largest purchases in their lives. Mortgage loans are generally necessary for most of us so that they can purchase a house.

Mortgage loans will generally fall into the three types of conventional, FHA and VA loans. Each has their own benefits and qualification conditions so by getting some basic knowledge of all of them first you will be a more knowledgeable buyer as you apply for your new mortgage and get ready to purchase your new home.

An FHA loan is insured by the government. The Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development or HUD, has insured in excess of 35 million mortgages since it began back in 1934. FHA does not lend money but it offers government backing to the lender in the event that the borrower defaults on the loan.

With an FHA loan you will get a reduced down payment. The down payment needed is usually just 3.5%. However, there are additional fees, which make your closing costs higher. You will also pay at closing for a mortgage insurance premium and that is 3% of the loan amount. With FHA you might still be able to qualify if your credit rating is a bit lower as there isn't any minimum standard and each situation is looked at on its own individual merit. The maximum loan amount for FHA is $625,500.00 but it can go up to $729,750.00 in the more expensive regions.

Fannie Mae and Freddie Mac, two quasi-governmental agencies, provide the guidelines for conventional loans. The bailout of these two agencies by the U.S. Government that happened during this recent recession has not affected the underwriting for new loans for consumers as of yet. A "conforming" conventional loan can be for as high as $417,000.00. If it exceeds that it goes into the "non-conforming" category and is called a "jumbo" loan. In certain areas, where homes may be more expensive, the limits may be greater.

A conventional loan will require the buyer to meet minimum guidelines for credit scores and income requirements. These guidelines often modify but expect to be required to have at least a 620 credit score and if your score is less than 740 you will probably be required to pay additional fees. The down payment on a conventional loan is usually between 5% and 20% but before the subprime mortgage meltdown it was common to find zero down payment and even 125% loan to value conventional loans.

A VA loan is backed by the Veteran's administration. Again, they don't lend money but rather they protect the lender from default. If you're qualified you can get into a Veteran's loan for a zero down payment and if you can work out the closing costs to be paid by the seller you may also get into the home with absolutely no money. However, these loans are not available for everyone and you must be a qualified veteran that has served in the U.S. Military.

While this is a broad overview of the potential loans you can get for your new home there are a lot of details that were not covered here. Prior to shopping for your new house you should do what you can to repair your credit and increase your credit rating. When you're ready you need to get together with some good mortgage and real estate professionals to get all of your questions answered and pre-qualify for your new mortgage.

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