Conventional Mortgages
Conventional mortgages are the most common type of mortgage loans and are offered by private lenders such as banks and credit unions. These loans typically require a down payment of at least 3% of the home’s purchase price, but if you put down less than 20%, you’ll need to pay for private mortgage insurance (PMI). PMI protects the lender in case you default on the loan.
Stricter Requirements
Conventional mortgages have stricter credit and income requirements compared to government-backed loans. In general, lenders prefer a credit score of at least 620 for a conventional loan. Additionally, you’ll need to have a debt-to-income ratio of no more than 43%.
Benefits
One benefit of a conventional loan is that you can use it to buy a variety of properties, including primary residences, second homes, and investment properties. Conventional loans also tend to have lower interest rates compared to government-backed loans.
Jumbo Mortgages
If you’re looking to buy a high-priced home, you may need to take out a jumbo mortgage. These loans exceed the conforming loan limits set by Fannie Mae and Freddie Mac, which are $548,250 in most parts of the country (as of 2021).
Because jumbo loans are riskier for lenders, they typically have higher interest rates and stricter requirements compared to conventional loans. Lenders may require a down payment of at least 10% and a credit score of at least 700.
However, some lenders offer jumbo loans with low down payment options, which can be a good option for buyers who don’t have a large down payment but can afford the monthly payments.
Second Mortgages
A second mortgage, also known as a home equity loan or home equity line of credit (HELOC), allows you to borrow against the equity you’ve built up in your home. Second mortgages can be a good option for homeowners who need to borrow a large sum of money for a big expense, such as a home renovation or college tuition.
However, taking out a second mortgage can also be risky. If you can’t make your payments, you risk losing your home. Additionally, second mortgages usually come with higher interest rates compared to first mortgages.
Special Programs
There are also special mortgage programs available for low-income borrowers, first-time homebuyers, and other special buyer profiles. For example, the Washington State Housing Finance Commission offers a variety of loan programs for first-time homebuyers, including the Home Advantage and Home Advantage Plus programs, which offer down payment assistance and reduced mortgage rates for eligible borrowers.
VA Loans
Veterans and active-duty military personnel may be eligible for a VA loan, which is a government-backed loan that allows you to buy a home with no down payment. VA loans also have more lenient credit requirements compared to conventional loans.
Non-Permanent Residents
For people working in the US on visas who might go back to their home countries in the future, there are lenders that offer mortgage options. One example is the ITIN (Individual Taxpayer Identification Number) loan, which is designed for non-permanent residents who don’t have a Social Security number but have an ITIN.