From our friend Chris Burk at Credit.com, this article explains three loans we’ve all heard about, but might not understand some of the inner-workings of to explain to our clients, rather, leaving that to a lender. It’s always a good idea to be THE well-rounded expert who can at least point them in the right direction.
Nearly a third of all successful mortgage applications in August featured FICO scores below 700, according to mortgage technology behemoth Ellie Mae. In August 2012, only about 15% of green-lighted borrowers had a sub-700 score.
Conventional loans are traditionally tougher to obtain than government-backed mortgages, and that’s still pretty much the case today. Conventional lenders are generally looking for a credit score of at least 740, which is higher than the typical minimum score required for government-backed loans. The average credit score for conventional borrowers in August was 758, according to the Ellie Mae report.
Consumers with sterling credit and the assets necessary to put down 20% will often be hard-pressed to find a more competitive loan product than this one.
The government doesn’t make home loans. Rather, it insures them. Federal backing tends to mean less stringent requirements, and that’s a big reason why loans guaranteed by the government represented nearly half of all mortgages last year, as recorded by the Federal Reserve.
This loan program was created to help improve access to homeownership for lower-income buyers. FHA loans require only a 3.5 % down payment, but they do come with both an upfront mortgage insurance premium and a monthly version, the latter of which you now pay for the life of the loan. That potentially decades-long expense is essentially the price for getting into a home today.
FHA lenders are considerably more forgiving to consumers with bruised and battered credit. Successful FHA homebuyers in August this year had an average 691 FICO score. The Ellie Mae report showed that applicants who failed to land an FHA loan had an average score of 667.
Previous homeowners who lost theirs to foreclosure also have a friend in FHA loans. The program recently altered its three-year “seasoning” policy to allow qualified homeowners to purchase just one year removed from a foreclosure.
In comparison, some conventional borrowers may face a four- to seven-year wait.
VA borrowers without a service-connected disability pay a funding fee on both purchase and refinance loans. The fee is typically 2.15% of the loan amount and helps keep the self-funded program running. It’s also a cost veterans are able to finance.
Perhaps surprisingly, in the face of all this flexibility, VA loans have had the lowest foreclosure rate out there for nearly all of the past five years.
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