Overview

Mortgage loans are used to buy a home or to borrow money against the value of a home you already own. A mortgage is an agreement between you and a lender that gives the lender the right to take your property if you fail to repay the money that you borrowed with interest. The most popular mortgages are a 30-year fixed-rate mortgage and a 15-year fixed-rate mortgage. There is also something called an adjustable-rate mortgage where the rate fluctuates with market interest rates.

Mortgage rates are dependent on several things that we can no control over and on several things in which we do have control.

Things that we don’t have control over 

  • Economy
  • Inflation
  • Job Growth
  • Federal Reserve

Things that we do have control over

  • Credit scores
  • Loan to value ratio
  • Home location
  • Home price and loan amount
  • Down payment
  • Loan term
  • Loan type
  • Interest rate

Requirements

The requirements needed to get approved for a mortgage will vary depending on the type of loan, location, price of the home, and more. The down payment needed can be as low as 3% and the credit scoring requirements can be as low as 580 and even lower in some rare circumstances but getting a mortgage with a score below 580 is not recommended. Lenders will look at your income and your debt to see what you can afford and they will also look at your credit history as well. Remember, credit scores don’t get you approved but they can get you denied. Meaning, it’s possible that you have scores that meet the minimum requirements but because of specific things on your report you still do not qualify.

At the end of the day, you will not know for sure until you speak with a loan officer and they find out about your specific needs, and then they will be able to lay out the exact requirements for the loan you will be getting. Do not allow paralysis by analysis to take over and cause you to put it off. We have been doing this for years and the biggest mistake we see people make is coming up with some reason or excuse that they shouldn’t talk to a lender yet.

Keep in mind, if you are using Credit Karma or a similar site online to monitoring your credit scores, those scores are far different from the scores that lenders use. So it could be that when a lender pulls your report and scores they are much better than what you are seeing online. More about this in the credit education section.

 

Common Types of mortgages

FHA

A Federal Housing Administration (FHA) loan is a mortgage that is insured by the Federal Housing Administration (FHA) and issued by an FHA-approved lender. FHA loans are designed for low-to-moderate-income borrowers; they require a lower minimum down payment and lower credit scores than many conventional loans. In 2020, you can borrow up to 96.5% of the value of a home with an FHA loan. This means you’ll need to make a down payment of 3.5%. You’ll need a credit score of at least 580 to qualify. If your credit score falls between 500 and 579, you can still get an FHA loan as long as you can make a 10% down payment.1 With FHA loans, your down payment can come from savings, a financial gift from a family member, or a grant for down-payment assistance. Because of their many benefits, FHA loans are popular with first-time homebuyers.

Conventional

A conventional mortgage or conventional loan is any type of home buyer’s loan that is not offered or secured by a government entity. Instead, conventional mortgages are available through private lenders, such as banks, credit unions, and mortgage companies. However, some conventional mortgages can be guaranteed by two government-sponsored enterprises; the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac)

VA

A VA loan is a mortgage loan available through a program established by the United States Department of Veterans Affairs (previously the Veterans Administration). The VA sets the qualifying standards, dictates the terms of the mortgages offered, and guarantees a portion of the loan, but doesn’t actually offer the financing. VA home loans are provided by private lenders, such as banks and mortgage companies, instead.

USDA

USDA loan is a mortgage that offers considerable benefits for those wishing to purchase a home in an eligible rural area. USDA home loans are issued through private lenders and are guaranteed by the United States Department of Agriculture (USDA).

Purpose of the USDA Loan

The USDA loan’s purpose is to provide affordable homeownership opportunities to low-to-moderate income households to stimulate economic growth in rural and suburban communities throughout the United States. These rural development loans are available in approximately 97% of the nation’s landmass, which includes over 100 million people*.

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