4 Types of Loans


Here are four types of loans you can get with a low down payment, which may be especially appealing to first-time buyers. A quality lender or mortgage banker will offer all these options and help you figure out which is the best for you and your family.

•Conventional Mortgage: Fannie Mae and Freddie Mac will back loans with down payments as low as 3 percent. You will need solid credit to get these loans, but they will offer all these options and help you figure out which is the best fit for your situation. Some programs also set standards for the home or condo, including a maximum price and the condition of the home.

These loans could be cheaper than the FHA loan and the more you put down, the less your PMI. If your lender doesn’t offer those loans, you should shop around.

Federal Housing Administration: The FHA has long backed loans with down payments as low as 3.5 percent. It accepts buyers with lower credit scores and those with thinner credit records. Buyers are required to pay mortgage insurance premium of 1.75 percent of the loan amount up front though it can be financed. There is also a monthly MIP for as long as you have the loan, which averages about $70 for every $100,000 borrowed. FHA also offers the 203 (k) loans, which can be used to both buy and rehab a home at the same time.

U.S. Department of Veterans Affairs: If you served in the military, you can get a VA loan with no down payment. You’re required to pay a funding fee of 2.15 percent of the loan amount upfront instead of PMI, which can be financed. If you have a service-connected disability, the funding fee is waived. You still have to qualify for the loan based on income and credit, but the interest rate is likely to be lower than a conventional or FHA rate, plus there is no monthly PMI. “It’s really a good program,” says Casey Fleming, author of “The Loan Guide: How to Get the Best Possible Mortgage.”

U.S. Department of Agriculture: The USDA guarantees loans with nothing down in rural and suburban areas to those who meet income and other qualifications, and the rates are often lower than conventional loans. The USDA charges an upfront mortgage insurance premium of 2 percent of the loan amount.

Next week we will go into great detail about each of these loan programs to better help your family understand which is more beneficial to your situation.

So you can see, choosing a lender with expertise in the local market and experience in the field of finance can make a world of difference. Now would be a great time to call your favorite lender and get pre-qualified to buy the home of your dreams with the best mortgage possible.