Amanda Amezcua Profile Picture
Staff Writer at Debt Reduction Services

 

Borrowers can successfully buy their first property with the right home mortgage loan.

Here Are the Most Common Home Mortgage Loans and How You Can Qualify

The process of buying a home is an incredible (and intense) experience. Proper preparation for this accomplishment is the culmination of so much sacrifice and hard work. You’ve conquered it. You have a down payment in hand, savings in your pocket, and a healthy credit report showing a consistent history of responsibility. Congratulations!

With your finances in order, the next step is to meet with the professionals. To ensure the smoothest home buying journey, you’ll first want to obtain a pre-approval through a home mortgage loan lender.

While most professionals will kindly hold your hand along the way, it is always wise to be leery of anyone who could be taking advantage of what you don’t know. The best way to guard against this is to educate yourself ahead of time.

With the help of industry expert, Corey Vandenberg, we’ve put together a guide to teach you the basics.

What are the most common types of home mortgage loans?

You may think there are too many to know. However, most lenders rely on the same four kinds. They include Conventional, FHA (Federal Housing Administration), USDA (United States Department of Agriculture), and VA (Veteran Affairs) loans. With varying requirements for borrowers to meet, there is a type of loan for almost every financial situation.

What are the requirements to qualify for each?

Meeting the qualifications for lending is a multi-step process. Lenders first look at your ability to borrow by assessing your credit score and history, savings, bank history, and even your tax returns.

Next, a lender or loan officer will match a loan product to the type of purchase you will be making – will the property be a primary residence or an investment?

Finally, the lender will discuss the terms of the loan to ensure the borrower(s) is comfortable with what is expected of them.

To be sure you are getting exactly what you want, consider the topics below as worth addressing with your lender:

  • Type of property (primary residence or other)
  • Interest rate on loan
  • Minimum down payment required
  • Financial assistance programs available
  • Calculation of affordable monthly mortgage payment
  • Mortgage insurance
  • Acceptable gift options
  • Seller Contribution limits

Generally, a conventional loan is the hardest to qualify for, though it has the best terms. It requires a higher down payment (5%), a healthy credit history, and a minimum credit score of 620.

FHA, USDA, and VA loans were each designed with a purpose in mind whether it’s to assist lower-income households, help sustain more rural towns, or provide support to veterans.

Because of this, borrowers have a better chance at qualifying for them with lower down payments (3.5%) and credit scores, as well as a less than perfect credit history.

What are the pros and cons of each?

Conventional Loans:

For those who can secure a conventional loan, they stand to reap more competitive interest rates. Borrowers also enjoy fewer attached fees, such as private mortgage insurance. However, conventional loans may not cover as much of the purchase price as borrowers are hoping for.

FHA Loans:

If your financial situation is less than perfect, an FHA loan may provide you the flexibility needed to purchase a home. These loans sometimes offer a larger loan amount to lower-income individuals. In turn, the borrowers will be obligated to pay private mortgage insurance for a significant portion if not the full life of the loan.

Shop around for a home mortgage loan that meets your needs.

USDA Loans:

According to the United States Census Bureau, the majority (we’re talking 97%) of land in the U.S. is considered rural, yet less than 20% of the population lives in these areas. It’s no wonder then, that the government would encourage households to move or occupy this land through the USDA financing program.

If you’ve been dreaming of moving to the countryside or want to stay put in your rural area, the USDA loan provides 100% financing on homes that qualify. Financial requirements are less stringent than some programs, accepting borrowers with lower incomes and no down payment.
A USDA may be difficult to acquire if the household has a higher income or a poor credit score.

VA Loans:

Vandenberg suggests, “If you are a veteran, it’s the best type of loan available.” This is because of generous financing options including funding up to 100% with no mortgage insurance and the ability to refinance the full amount later on. He does add the disclaimer that in such a hot market, the price of many homes lies outside of the loan parameters.

What are the exceptions to the qualifications of these loans, if any?

Most home-buying candidates qualify for one of the above loans. Unfortunately, because they are guaranteed by the government, their standards must be met with no exceptions.

If your credit history is blemished from medical debt or divorce, as a prospective borrower, you may find luck with a portfolio loan.

Portfolio loans differ from the previous loans because they are held and backed solely by a bank. This means so long as the bank does not sell the loan to organizations involved with government programs, they can determine their own standards. They may be willing to approve less than ideal borrowers, but not without cost to the consumer. This often comes in the form of a higher interest rate or larger down payment.

While portfolio loans extend another option to those struggling to qualify for homeownership, Vandenberg warns, “never do portfolio loans represent a better option than a standard conventional or government mortgage.” It may be a wiser choice to delay home buying until a borrower has the opportunity to raise their credit score and clean up their credit history.

Surprisingly, with positive efforts, you can start to see progress in sometimes as little as 6 months. For more information on how to improve your credit, you can consult one of our certified credit counselors at (877) 688-3328.

Obtaining a mortgage loan is the most stressful part of home buying and can come with great disappointment if you don’t qualify in your first lending appointment. Vandenberg advises to “get with someone who knows and offers more options than just a handful. Find out what you need and ask what you can do to qualify. If at first, you don’t succeed, keep on trying.”

Homeownership is a dream worth holding on to. With a well-matched home mortgage loan program, you can (and will) make it happen.

Do You Have Questions About Home Mortgage Loans?

Comment Below and We’ll Respond Quickly!

We frequently review our articles and blog posts for comments and make sure to respond fast.

If you need more information on preparing for a home mortgage loan or have any other questions about improving your personal finances, please feel free to comment below and we’ll answer as right away!

  1. Aljurf

    Nice article, financial requirements are less stringent than some programs, accepting borrowers with lower incomes and no down payment.

  2. Sariah Meagle

    I’m done being pre-approved by the lender to get a home mortgage. I think I will get a conventional home mortgage loan if I qualify for it. Thanks for telling me that meeting the qualifications for a home mortgage is a multi-step process so I can prepare for it once I get one from a mortgage company.

    • Amanda Amezcua

      Hi Sariah,
      Thank you for the comment. I’m glad our post could provide you with some benefits! If you continue to keep this information in mind, you should have a smooth home-buying experience!

  3. Michael

    Great article. I liked how comprehensive it was, all the detail, the pros and cons, the great explanations of qualifications, and the mention of a portfolio loan!

    Do you know how many times you can use the new UltraFico to potentially raise your credit during the loan process? Is it a one time thing?

    • Todd Christensen

      Thanks, Michael, for the comment and the question. The UltraFICO score allows consumers to add banking and checking information to this particular version of the FICO credit score. Since this is still a new product, there are a lot of questions still to answer. I suppose if the potential borrower has multiple checking and savings accounts, adding each would likely improve their UltraFICO. However, I would assume that as with all versions of FICO scores, not all lenders will use UltraFICO, certainly not initially, and possibly not ever. Each lender chooses when to update their systems for which FICO scores. Some do so immediately while others take years and still others skip over some FICO scoring models altogether.

  4. ARHL

    This is a great run down of home mortgage loans, thanks! Do you have any information about fixed-rate or adjustable-rate mortgages?

  5. Michael Lee

    My wife and I have been house hunting and we are now wanting to look into home loans for a house that we found. I do think that it is important to address the monthly payment. The duration of the loan is also another point that needs to be addressed.

    • Amanda Amezcua

      So true, Michael. Anyone pursuing a home loan would be wise to calculate the monthly payment they can afford and go into the process with a budget. Loans typically come in 15-year and 30-year terms. The latter is more popular since it usually yields a lower monthly payment. However, if a 15-year payment can be afforded, it saves money in interest. Best of luck in your house hunting!

  6. Vanessa

    My boyfriend and I want to buy a house, our credit is excellent( more than 700) but our problem is he works in cash and his income taxes are low, I lost my job last year and started working in cash and studying, there’s some loan for us?

    • Amanda Amezcua

      Thank you for your question, Vanessa! Most loans and lenders strictly require that income be verified through documentation including pay stubs, tax returns, W-2s, or by letters written by your employers. Your best bet is to look to the portfolio loan mentioned in the article or to seek a loan through a bank or credit union you already have a long relationship with. In both cases, there may be a small chance they are willing to accept “alternative” income verification such as your banking history. It won’t hurt your credit to ask several different lenders if your situation qualifies if you do so within a month’s time. Worst case scenario, you will need to acquire new jobs with recorded income and maintain them for 6-12 months before re-applying. Let us know if you have any other questions. Keep fighting for your dream of home ownership!

  7. MARJORIE GRAY

    I’m downsizing and in the process of obtaining a pre_fab home . I have good credit and am now in a 30 year mortgage loan. I have been in my present home for 10 years. I would like to know if a conventional loan will be best. Also does the interest rate tend to make it harder to get a loan for a pre_fab home.

    • Amanda Amezcua

      Hi Marjorie,
      Thank you for reaching out. GoBankingRates wrote an insightful article on this subject called, “How to Finance a Manufactured Home.” I think it will answer many of your questions. As always, finding the right loan for you goes beyond what you qualify for alone. Are you looking to have the home paid off before retirement? Do you want to avoid PMI? And do you want to own or rent the land your home sits on? These are all things to consider. Please let us know if we can answer any other questions. We hope you find the best outcome in your home buying experience!

  8. Joy Butler

    Thanks for the information about loans. I think that everyone could use this. I will have to remember the difference between the USDA and VA Loans for future reference.

  9. Ellie Davis

    Thank you for pointing out that there are different home loans you can get. I’m needing to get a new home and need financing. I’ll have to do some research and find the best home financing service in my area.

    • Amanda Amezcua

      Absolutely, Ellie! Research is key. The best option for you may not be the most obvious one. Best of luck on your search!

  10. Michael Lee

    My wife and I are thinking about getting our first home and have never gotten a mortgage before. Because of that, I have wanted to look into the different types of loans. I have never heard of the USDA loan before, I work from home so moving outside of the city might be nice to help with a good loan.

    • Amanda Amezcua

      Thanks for the comment, Michael! I’m glad this post could shed some light on another possible option for you!

  11. Cara Thomsen

    I’m in the process of getting divorced. My husband and I own a home that’s fully paid for. He’d like to buy me out of our property but cannot qualify for a loan at this time due to some missed payments that he had a few months ago when he was in an accident. He has since caught up on all of the payments & has been making payments on time since August 2018. The missed payments happen from April through July of 2018 and on the same store card. Prior to that there were no missed payments. All of his other accounts have been current. There was also a Chapter 7 bankruptcy in January of 2015. His credit score is currently approximately 620. We’re wondering about how long it should take for him to be able to qualify for a loan to buy me out after the payments were brought to current. Debt to income ratio is fine for the amount he is wanting to borrow. I was unaware of the account as he paid that separately so while he was recovering I wasn’t aware that that bill needed to be paid or even existed. Will lenders take into consideration the reason for the missed payments was due to him being in the hospital and recovering? How long should it take for him to be able to qualify for a loan to buy me out after the payments were brought to current. We were told bebt to income ratio is fine for the amount he is wanting to borrow and that it can take a year of on-time payments. Does sound right? He’s wanting to borrow approximately 65% of the value.

    • Amanda Amezcua

      Hi Cara,

      Thank you for your comment. I’m sorry to hear you are in a bit of a sticky situation. I’d like to address each of your points as they were mentioned – first, missed payments. While missed payments stay on a credit report for quite some time, it sounds like there were only a few and they don’t seem to be affecting your husband’s credit score too terribly.
      The Chapter 7 bankruptcy will stay on his report for about 10 years from the time of filing (2015). There is no quick or easy way to erase its effects. However, even with both negative marks, his current credit score of 620 should not necessarily disqualify him from lending. It all depends on how stringent individual lenders are toward bankruptcy and perhaps other factors.
      The best way of finding out if he will qualify for a loan, will be to talk to a handful of reputable in-house lenders i.e. look for places that write the loans themselves instead of seeking a loan product from a big bank. In-house lenders can sometimes bend qualifications on a case by case basis or choose to be more lenient toward credit scores and history. It’s key that you (or he) talk to these places all within a month as they usually will do a credit inquiry. If done within a month’s time, these inquiries will be grouped together into a single instance.
      If nothing works out, then, yes a year of on-time payments and other good credit behavior can increase his chances of qualifying next year.
      I hope that was enough information to help you find your next step. If you have any other questions, please don’t hesitate to reach out again. Best of luck, Cara!
      -Amanda

  12. Deborah James

    What is meant by paying down points? Is this something I should try to do? If I qualify for Conventional and FHA, and have the money for downpayment in conventional, which is better?

    • Amanda Amezcua

      Hi Deborah! There are two types of points: discount and origination (though they may be referred to in different ways by your lender). In both cases, the buyer is handing over more money upfront to reduce costs later on. Many experts say it can be a good deal to pay down the interest rate of your loan if you plan on keeping the home for a long time.

      In regards to your second question, a conventional loan is usually considered the better option because it can come with a better interest rate and doesn’t require the borrower to pay Private Mortgage Insurance. Both terms mean a lower monthly mortgage payment for the borrower.

      We hope this information helps and wish you the best of luck in your home-buying journey!

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