Which mortgage program is the best? The answer is the one that you best qualify for a mortgage.
The 2 best mortgage programs are VA and USDA mortgages because these are $0 down, no or very low private mortgage insurance, and low credit scores to qualify (500 for VA and 580 for USDA.)
VA Mortgages are always $0 down. It is available for veterans, active military, reserves or surviving spouse; a 500 Credit Score qualifies with 580 preferable; a retired vet needs a DD214 (honorable discharge) and Certificate of Eligibility; the seller can pay for all your closing costs – up to 6% of the purchase price; and, some believe the VA has to provide an approval: not so, the mortgage is approved and funded directly by a lender, just as other loans.
USDA: stands for United States Department of Agriculture and is $0 Down. Originally, designed for rural families or housing with moderate income. Or, homes in the country, far away from the city. Today, with urban sprawl, you can get a USDA mortgage close to work or other city life. Key points: Down Payment: 0% down payment; Closing Costs: up to 6% can be paid the seller; Credit Score: Minimum 580; There are Income Limitations: your total family income must be under $82,700; The location of the home determines if it will be a USDA loan; and, The home can be a regular sale, short sale, foreclosure or bank-owned home single family, townhome or approved condo.
If you are not a VET or looking at a USDA property, the simple answer is: which one gets you the mortgage for the house you want.
Here are some key highlights:
- FHA stands (Federal Housing Administration) loans are available to all borrowers and are guaranteed by the government.
- The mortgage is issued by the bank, not the government, but the government insures the loan against default.
- Getting an FHA loan is the easiest of all loan programs.
- You need a Credit score 580 for down payment of 3.5% of the purchase price.
- You can go to a 500 credit score with 10% down. You just cannot have terrible credit the last 2 years.
- It has the lowest interest rates of all loans.
- Requires MI – mortgage insurance for as long as you have the mortgage. And, the mortgage insurance is a bit higher conventional.
- The seller or lender can pay your closing costs.
- It has the highest debt-to-income ratio – meaning you can afford more of a house.
- It is best for borrowers with an average or poor credit.
If your credit score is under 620, or if you have less than perfect credit over the last 2-3 years, then an FHA Mortgage is best for you.
- The traditional loans offered to borrowers with the best credit scores.
- If you are a 1st-time homebuyer – your down payment is 3%.
- For others, the Down Payment of 5%.
- The minimum credit score is 620.
- The higher your credit score, the lower your rate.
- Sellers can only contribute 3% toward closing costs.
- You will need mortgage insurance if you place less than 20% down.
- You need to have near perfect credit and cannot have missed payments or bad credit for 2 years plus to qualify
- The rates are slightly higher rates than FHA.
- Most borrowers want to be here because of the lower mortgage insurance and how it drops out once you have 20% equity.
However, if you are a first-time homebuyer, or are recovering from a bad credit situation, and you do not want to wait several years to build your credit, starting at an FHA is the better option for you.
Chris Luis, Florida’s Favorite Mortgage Broker. email@example.com, 800-991-3268
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