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Financing Options
There are three main categories of real estate loans. Some states and local jurisdictions may have additional categories. To view different types of loans, click here.
Conventional Loans
A Conventional Loan is one that does not directly involve the government. While it does follow some accepted guidelines, the lender is a little freer as to what terms they can offer. Generally a conventional loan will necessitate a higher downpayment, but there are loan programs available that will allow a downpayment as low as 5%, and with exceptional credit, even 3% or no downpayment.
The normal debt ratio for a conventional loan is 28/36, meaning that 28% of the borrower’s gross monthly income (before taxes are taken out) can go to their house payment, and 36% of their gross monthly income can go to their house payment, plus all other monthly debts combined. Depending on the lender, the current economic situation and the borrower’s financial situation, the lender may be able to bend these guidelines slightly.
FHA or HUD Loans
A loan insured by the Federal Housing Administration (FHA), which is a branch of the Department of Housing and Urban Development (HUD), part of the U.S. government. The money is still loaned by financial institutions, not by FHA. Because FHA is insuring the loan, lenders are able to provide loans with a lower downpayment, roughly 3.5% of the loan amount. The debt ratio on an FHA loan is 31/43 (see explanation above). This type of loan is helpful for buyers with lower income and less cash available to purchase a home. The ceiling (the maximum someone could borrow) on an FHA loan amount varies from county to county, based on the cost of purchasing a home in that jurisdiction.
VA or DVA Loans
A loan guaranteed by the Department of Veterans’ Affairs, also part of the federal government. Since they are guaranteed, the lender can safely make a loan with no downpayment and a higher debt ratio (41/41). To qualify, the borrower must be a U.S. Military veteran who was discharged under honorable circumstances. The veteran must get an Eligibility Certificate from the Department of Veterans’ Affairs to certify that they are qualified to receive this benefit.
Are You Qualified To Buy?
Types of Loans
All About FHA Loans
The Loan Process
Financing Vocabulary
Veterans & Military
Lenders
George Kuda - Prosperity Mortgage
www.GeorgeKuda.com
©2003 Douglas R. Barry