The Lawhead Team knows there are many different types of loans one can apply for when buying a house. We would like to compare the two most common loans, Conventional loan and FHA loan, for our readers.

An FHA loan is a loan which is backed by the federal government and issued by participating lenders. With a conventional loan there is no such guarantee and the risk is assumed by the lending bank or other loan stakeholders.

A conventional loan lender will follow stricter Fannie Mae and Freddie Mac underwriting guidelines which require good credit, strong financial status and lower loan-to-value ratios. On the other hand, because of government intervention with an FHA loan, you must go through a more complicated approval process.

Conventional Loans vs. FHA loans –

• FHA loans only require a down payment of 3.5 percent which can be funded using borrowed or gift money while a conventional loan requires at least 10 percent down.
• To qualify for a conventional loan you must have a credit score of at least 620 however anything below a 740 will result in higher mortgage payments.
• Because a conventional loan requires a higher down payment, the borrower will be able to build equity faster. Because FHA loans require a comparatively lower down payment, borrowers are required to pay a mortgage insurance premium (MIP).
• FHA loans are suitable for applicants with bad or no credit. Conventional loans are suitable for those with sufficient cash and healthy financial conditions.
• FHA loan borrowers are required to pay a 1.5 percent upfront fee and a monthly 0.5 percent premium for the FHA mortgage insurance, which is designed to protect lenders from losses arising from mortgage defaults.

If you are in the market for a new home but don’t have the standard 20% down payment for your your mortgage saved up, you can still buy a home!

There are other mortgage options that require little or no money down.  The Lawhead Team would like to share some mortgages that work for those with little or no money saved.

Mortgages with smaller down payments have become more common and some borrowers can now even be eligible for no down payment loans.  The following are four mortgages that individuals can qualify for with little or no money down.

FHA Loan – The Federal Housing Administration offers a low down payment loan of 3.5 percent available to most people.  Unlike the other loans listed below, this loan is not restricted to limited groups of buyers.

Today, about 30 percent of all home loan borrowers get FHA-insured loans which is up from 3 percent during the housing boom. On a loan with the minimum down payment, there is an annual premium of 0.55 percent of the mortgage amount – for example, $550 a year for each $100,000 borrowed.

VA Loan – The Veterans Affairs guarantees no down purchase mortgages for qualified veterans.  Private lenders usually originate VA loans which the VA guarantees.  The borrower pays a funding fee, which can be rolled into the loan amount and there is no mortgage insurance.

The VA funding fee varies depending on whether the veteran served in the regular military or in the Reserves or National Guard.  The funding fee can be anywhere from 2.15 percent to 3.3 percent.

Navy Federal Loan – The Navy Federal Credit Union, the nation’s largest in assets and membership, offers 100 percent financing of up to $650,000 to qualified members for buying their primary home.  Credit union eligibility is restricted to members of the military, some civilian employees of the military and US Department of Defense, and family members.

The credit union’s zero down program is similar to the VA’s however the one difference is cost: Navy Federal’s funding fee of 1.75 percent is less than the VA’s funding fees.

Department of Agriculture – Unfortunately, with the popularity of the Department of Agriculture’s Rural Development mortgage guarantee program, it ran out of money this spring.  Congress is expected to cough up more in time for summer home buying season however.  This loan offers no down payment and the Rural Development loans are not confined to farmland.

The USDA has maps on its website which highlight the eligible areas.  In addition to geographical limits, the USDA program has restrictions on household income and is intended for first time buyers although there are exceptions.  There is no mortgage insurance with this loan however the USDA levies a 2 percent guarantee fee, which can be rolled into the loan.

Below is information we found directly from FHA Home Loans website for qualifying for an FHA Loan:

FHA loans are the easiest type of real estate mortgage loan to qualify for. The FHA loan requirement guidelines for loan qualification are the most flexible of all mortgage loans that require less than 5% down payment.

Basic FHA loan requirements.

• Two Years of steady employment, preferably with same employer.

• Last two years Income should be the same or increasing.

• Credit report should typically have less than two thirty day lates in last two years with a minimum credit score of 620 or higher or in some cases no credit score at all.

• Bankruptcy’s must be at least two years old, with perfect credit since discharge.

• Foreclosure’s must be at least three years old, with perfect credit since.

• Your new mortgage payment should be approximately 30% of your gross (before taxes)  income.
  

These are some of the most basic of FHA loan requirements  for qualifying for a FHA loan.  If   you have answered yes to most of these statements, you probably qualify for a FHA mortgage loan.

Contact The Lawhead Team to start looking for your new home and start the approval process for your loan!