Conventional loans standardly require a 20% down payment with no required mortgage insurance. Conventional loans may also finance up to 95% with approval of a mortgage insurance company. These loans can offer either fixed or adjustable interest rates and have a variety of repayment terms available that can be tailored to meet individual needs.
At just 3.5% down payment and lower credit score requirements, Federal Housing Administration (FHA) loans are ideal for first-time home buyers. Down payments can be in the form of gifts, grants or subordinate financing. These loans offer either fixed or adjustable interest rates, with 30-year repayment terms. Each area of the country has its own designated maximum loan amount, as determined by the Department of Housing and Urban Development (HUD). While FHA generally requires a credit score of 580, lenders can fund loans for those with credit scores as low as 500 (with 10% down) and to those who have yet to establish a credit score (with alternative credit sources).
The interest rate on a fixed rate mortgage remains constant over the term of the loan. Your monthly principal and interest payment will never change through the term of the loan. Fixed rate mortgages are especially suited for those who expect to remain in their homes for a number of years.
An interest rate that fluctuates over time. In most cases, the initial interest rate is lower than that of a fixed rate mortgage. The lender bases its calculations on the index and margin of the mortgage. The index is a base rate that the lender then adds the margin at each adjustment period to determine a new interest rate. Be sure to check the type of index your mortgage lender is using, because some fluctuate more than others. With an Adjustable Rate Mortgage low start rates can reduce your initial payments.
For those in communities with less than 25,000 population, the USDA loan program offers zero down payment (up to 100% financing) for new construction or existing homes (based on appraised value). Available to low- and moderate-income households. Visit the USDA website or contact a loan officer for income, property and other details.
Available to individuals who have served or are currently in the U.S. armed forces that meet eligibility requirements, VA mortgages require no down payment (100% financing) and no minimum credit score. VA loans are made by approved lenders and guaranteed by the Veterans' Administration. Closing costs are regulated for the protection of the veteran. VA loans are also assumable with release of liability and there are no penalties for prepayment.