When it comes time to choose a loan,
many people can be overwhelmed from the different types of loans that are
available. It doesn’t help that there are plenty of lenders, banks, brokers and
other financial institutions to choose from. It always seems that whomever you
speak to may give differing views on lending information and practices. The
experience of finding the right loan can be somewhat confusing, overwhelming
and stressful. Let’s look at the types of loans that are available:
A Conventional
Loan is a salable loan that is not affiliated with a government agency.
These loans are guaranteed by Fannie Mae or Freddie Mac and are underwritten by
their guidelines to ensure sound practices of issuing credit based on income,
assets and collateral. These guidelines are widely accepted by lenders,
financial institutions and banks which allows these entities to sell mortgage
loans to Fannie Mae or Freddie Mac directly. Guidelines may differ based on
credit score, loan amount, down payment, etc.
A FHA
Loan is a government-issued loan. This loan is backed and fully insured by
the US Department of Housing and Urban Development. One primary difference
between a Conventional Loan and a FHA loan is with an FHA loan, you can bring a
minimum of 3.5% down payment when making a home purchase. Another difference is
the source of the down payment can be gifted by family, friends or employer. There
are also some guideline differences but that would depend on your particular
credit and income profile.
This is a broad and general overview of
the two major types of loans that are available. Factors such as location of
the property, type, credit score and loan amount will determine eligibility of
the loan qualification. This should serve as a basic understanding on the key
differences of available loan products.
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