Palmer Harned, Realtor®
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Types of Loans

This is Part 5 in a series of posts about how to tackle the home buying process.

You’ve probably heard many of the terms below, but what do they mean for you?  Lenders have dozens of loan programs available to fit your specific needs, and each lender will have slightly different requirements.  Below are the most general programs, terms and requirements.  

Conventional – Ideal for those who have good credit and a good amount saved for a down payment. 

  • 680 minimum credit score 
  • 5% minimum down payment  
  • $625,500 maximum loan amount
  • Interest rates typically higher
  • No monthly mortgage insurance 

FHA – Ideal for those who have average credit and less money saved for a down payment with slightly higher debt.

  • 640 minimum credit score 
  • 3.5% minimum down payment
  • $625,500 maximum loan amount
  • Interest rates typically lower
  • Must pay premium and monthly mortgage insurance

VA – Ideal for military veterans!

  • 620 minimum credit score
  • No down payment required
  • $692,500 maximum loan amount (without down payment) 
  • Interest rates typically as low as FHA
  • No monthly mortgage insurance

VHDA – Ideal for first time homebuyers! With average credit scores and income, little to no money saved and debt above 41%, looking to purchase an average-priced home.   

  • 640 minimum credit score 
  • No down payment required
  • $417,000 maximum loan amount 
  • $120,900 maximum income (for 2 people)
  • Interest rates typically between conventional and FHA rates
  • Must pay premium and monthly mortgage insurance

USDA – Ideal for those in more rural counties with lower credit scores, income and money saved, but who have less debt, looking to purchase a lower-priced home.

  • Not available in Arlington or Fairfax Counties
  • 620 minimum credit score
  • No down payment required
  • $417,000 maximum loan amount 
  • $101,000 maximum income (for 2 people)
  • Interest rates typically as low as FHA
  • Must pay premium and monthly mortgage insurance

Note: Many lenders offer similar loan programs for lower-income buyers in non-rural areas.

203k – Ideal for those planning to do larger-scale renovations upon purchase. 

  • Loan amount based on projected value of property once renovations are complete
  • Renovations must be finished within 6 months of purchase
  • Not available to investors
  • All other requirements are typically the same as FHA

HomePath – Ideal for those purchasing a foreclosure.

  • 660 minimum credit score
  • 5% minimum down payment (10% for investors)
  • No monthly mortgage insurance
  • Only applies to foreclosure homes listed on the HomePath website
  • Allows some cost of renovations to be financed 

 

Conforming vs. Jumbo

A conforming loan is a loan amount at or below the maximum loan amounts listed above.  A jumbo loan is a loan amount above the maximum loan limits.  Jumbo loans require lower debt, higher credit scores, and larger down payments.  Jumbo loans also have higher interest rates.   

 

15-Year vs. 30-Year

These are the most common lengths of loans, indicating the number of years you have to pay back the loan.  15-year loans typically have lower interest rates but higher monthly payments, whereas 30-year loans offer lower monthly payments with a higher interest rate.

 

Fixed vs. ARM

These terms refer to the interest rate – fixed vs. adjustable.  A fixed interest rate stays the same throughout the entire life of the loan, whereas an ARM fluctuates depending on the market.  While ARMs tend to be more risky in general, there are some instances where they can be beneficial.  For example, a 5/5 ARM locks in you in to one interest rate for 5 years, with the interest rate only increasing by a small amount every 5 years afterwards.  You can also refinance out of an ARM into a fixed rate mortgage at any time.   

 

The information above is based on general guidelines.  Specific loan terms will vary depending in your individual situation.  Make sure you speak with a lender who will run the numbers and help you identify the best program to suit your needs.

Stay tuned for next week’s post which will discuss the loan process from application to closing.

 

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