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Conventional

A conventional loan is not associated with the FHA, USDA, or VA. It generally requires at least 5% down (though it can be as low as 3% for some buyers), but private mortgage insurance (PMI) is required for down payments of less than 20%. Paying PMI will add to the cost of your monthly payments.

 

Pros

  • No PMI required if down payment is 20% or more
  • Larger down payments may help build home equity earlier

Cons

  • PMI is required for down payments under 20% 
  • More difficult requirements for income and credit score

Uses

  • Available for most types of property, including second home and investment properties

FHA

Because FHA loans are insured by the Federal Housing Administration (FHA), it’s easier to qualify for them. That makes them attractive to first-time buyers, families with low to moderate incomes, and buyers with lower credit scores or higher debt-to-income ratios. FHA loans also tend to have lower down payments (as low as 3.5%), lower monthly insurance premiums, and often lower closing costs.

Pros

  • Easier requirements for income and credit score

  • Minimum down payment: 3.5%

  • Mortgage Insurance Premium may be less costly than PMI

  • Lower closing costs

  • Seller can contribute up to 6% of sale price to help cover closing costs. 

Cons

  • MIP required

Uses

  • Buy, build, or refinance houses, approved condos, modular homes, and manufactured homes with pre-approval

VA 

Offered as a benefit to active and retired U.S. military personnel, VA loans are guaranteed by the U.S. Department of Veteran Affairs. Like FHA loans, they are easier to qualify for (if you are an eligible veteran) and have lower costs and more liberal terms.

Pros

  • Easier requirements for income and credit score

  • No down payment

  • Lower closing costs

  • Interest rates may be negotiable

Cons

  • Must be an eligible veteran or unmarried surviving spouse of a veteran who died on active duty or as the result of a service-connected disability

  • VA Funding Fee may be required

Uses

  • Purchase, construction, or energy-saving improvement (approved by lender and VA) of a home

USDA Rural Development

Guaranteed by the United States Department of Agriculture (USDA), these loans offer an affordable way to purchase property in rural neighborhoods. These are non-urban areas, but often include villages or small towns near bigger cities. The loan term is a 30-year fixed-rate mortgage.

Pros

  • No down payment

  • Allows for non-traditional credit

  • Lower closing costs, with no limit on contributions from seller or gift money

Cons

  • Must meet USDA location standards

  • USDA Guarantee Fee is required

Uses

  • Owner-occupied single family housing

FHA Standard 203(k) Home Improvement

Insured by the Federal Housing Administration (FHA), the Standard 203(k) covers repairs of more than $35,000, including structural work. You can borrow funds to pay for upgrades, to reconstruct a home that is currently unlivable, or to tear down an existing structure and build a new one on some portion of the existing foundation.  Allowable improvements include structural alterations and reconstruction, major landscaping, and site improvement.

Pros

  • Minimum 3.5% down payment 

  • Borrow up to 96.5% of projected value after improvements are done

Cons

  • Mortgage Insurance Premium (MIP) required

  • Primary residence, owner-occupied homes only

Uses

  • Improvements for your current house or a fixer-upper that you buy

FHA Limited 203(k) Home Improvement

Also insured by the Federal Housing Administration (FHA), the Limited 203(k) is designed for repairs costing less than $35,000. You can borrow funds to replace carpet, repaint, or buy new appliances. Structural work, landscaping, and luxury items like hot tubs and tennis courts are not allowable.

Pros

  • Low 3.5% down payment 

  • Borrow up to 96.5% of projected value after improvements are done

Cons

  • Mortgage Insurance Premium (MIP) required 

  • Allowable items are limited

Uses

  • Improvements for your current house or a fixer-upper that you buy

HomeStyle® Renovation

This loan is designed for buyers who want to buy a home and fix it up, or homeowners who want to remodel. The only restrictions are that repairs or improvements must be permanently affixed and add real value to the property.

Pros

  • Minimum 5% down payment (10% down for second homes)

  • Wide range of uses

  • Gift funds can be used for a portion of down payment and closing costs

Cons

  • PMI required for down payment under 20%

Uses

  • Purchase, refinance, or remodel
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