A Look at the 4 Major Types of Home Loans
Whether you’re actively looking for a home to purchase or just thinking about it, knowing the four different types of home loans will help you better navigate the process:
These are often referred to as first-time homebuyer loans, although you don’t have to be a first-timer to qualify for an FHA loan. You just have to be an owner-occupant and you can’t have more than two FHA loans at once. With one of these loans, you can purchase a home with as little as 3.5% down, and you don’t even need perfect credit to qualify. The current FHA loan limit in Clark County is $345,000. These loans are great for first-time homebuyers or people who are limited in how much of a down payment they can afford.
However, there are a few downsides to FHA loans. For one, the mortgage insurance premium doesn’t go away when you reach 80% loan-to-value—it used to be that once you had 20% equity, you could have the mortgage insurance taken off, but you can’t do that under current FHA loan rules. This means that you’ll pay more in monthly payments than you would with other loan types.
A VA loan is offered to U.S. Military veterans or active-duty officers. This type of loan requires no money down at all! The current limit for a VA-guaranteed loan in Clark County is $510,400. The only downside to a VA loan is that it comes with a funding fee, which comes at a percentage of the loan amount on top of the loan. Veterans with disabilities can sometimes have the funding fee waived, however.
Essentially, these are loans that aren’t an FHA or VA loan. Most conventional loans are backed in the secondary market by Fannie Mae and Freddie Mac, which are government-sponsored enterprises that make loans affordable to the public. The current loan limit for a conventional loan in Clark County is $510,400.
Many of these loans are underwritten with the same criteria, regardless of the bank. You have to have good credit and a lower debt-to-income ratio to qualify for a conventional loan, but they also give you good interest rates and you can have more than one at a time. You can get in with as little as 3% down with mortgage insurance or 20% down with no mortgage insurance.
If you’re getting a loan with a loan limit higher than $510,400, that’s called a jumbo loan. The rates on jumbo loans can vary based on the loan amount and the down payment. These are often lent by private banks, credit unions, or portfolio lenders—loans backed by lenders who aren’t Fannie Mae or Freddie Mac—so they have different underwriting criteria depending on the institution.
If you have any questions about buying a home or mortgage, don’t hesitate to reach out to us. We’re aligned with some great mortgage lenders and we’d be happy to put you in touch so you can have your questions answered.