When you’re planning to buy a house, the options available for financing a home can be overwhelming. That’s why we’ve put together this guide to help you find the right mortgage for your needs. In it, we’ll cover all the major types of home loans available and discuss their pros and cons so you can make an informed decision.
A conventional mortgage, or traditional mortgage, is the most common home loan in the United States. Conventional mortgages are insured by Fannie Mae or Freddie Mac, which are government-created enterprises that ensure lenders will be paid back if a borrower defaults on a loan.
Conventional mortgages can be a great option for getting the best financing based on your credit score and debt-to-income ratio. Your interest rate will also depend on your creditworthiness.
In addition to your interest and principal, you’ll likely have to pay Private Mortgage Insurance (PMI) until you’ve paid 20% of your home’s value. Conforming conventional mortgages can currently be loaned in amounts up to $647,200.
FHA (Federal Housing Administration) loans are the most common type of government-backed mortgage. This financing option is typically a great option for a first-time homebuyer and borrower with less-than-perfect credit.
FHA loans can be used to purchase or refinance an existing home mortgage. If you’re hoping to buy your first house and have little money saved up, an FHA loan might be better suited than a conventional loan.
These loans may carry higher interest rates and a Mortgage Insurance Premium (MIP) will be built into your loan payment for the life of your loan (unlike PMI, which you’ll eventually stop paying).
Although these factors can add to your monthly payment, you’ll likely have a low down payment requirement of 3.5%. There may also be additional Oklahoma programs available to provide down payment assistance or help covering closing costs.
The USDA Rural Development Home Loan is a great option for borrowers who may be considered middle to low-income and who plan to buy a home in a rural area. The USDA mortgage loan offers 100% financing, which means you won’t have to put any money down.
These loans also offer lower-than-average interest rates. Instead of mortgage insurance, your monthly payments will include a guarantee fee paid to the USDA by your lender.
“Rural” is defined by the USDA and can be cross-referenced to confirm your desired home falls within this designation. Most of the state of Oklahoma is considered rural outside of the metropolitan areas of Tulsa and Oklahoma City. In addition to area restrictions, there are some additional qualifications you must meet to qualify for a USDA loan. You must meet income limits that vary by state and county and the home must be your primary residence.
If you plan on buying an extremely large or expensive home, you may need to consider a jumbo or non-conforming conventional loan. The loan amount for a jumbo loan goes beyond the $647,200 limit set by Fannie Mae and Freddie Mac.
Jumbo loans are for amounts greater than conforming loans, and they typically carry higher interest rates because of their risk to the lender. Qualifying can also be more difficult than other types of mortgages because lenders have stricter underwriting standards. If you’re interested in qualifying for a jumbo loan, you’ll need a high credit score, a low debt-to-income (DTI) ratio and ample cash reserves.
A VA Loan is a government-backed mortgage available to United States Veterans and active duty military members. These loans require no down payment and offer a lower interest rate, in addition to not requiring mortgage insurance.
A VA loan offers some of the best terms available to veterans. This means you can get into your dream home without worrying about saving up an enormous amount of money for the down payment and still get a low monthly payment.
Native American 184 home loans are designed to help Native American families and individuals purchase a new or existing single-family home on or outside of tribal lands. Native American 184 loans can also be used to refinance an existing mortgage.
Not all lenders and tribes participate in the Native American 184 loan program, however. Check with an approved lender to consider a full range of loan options before choosing a lending option for your home.
If you are buying a home and do not have a Social Security number, then an ITIN home loan may be the best financing option for you. An Individual Taxpayer Identification Number (ITIN) can be issued to a U.S. resident alien or non-resident alien that files a tax return and is not eligible for a Social Security Number. An ITIN can also be issued to dependents and/or spouses of a U.S. citizen or resident alien.
These loans are not government-backed and considered high-risk, so you can expect higher down payment and interest rate requirements. It can still be worth it to own your own home, and the payments are often comparable to rent payments.
To qualify for an ITIN loan, you’ll need to have at least two years of tax returns and proof of income. You’ll also need to be sure you’re keeping any money you’ve been saving in a bank account for at least two months. Your credit score will be pulled using your ITIN, so it’s important to keep track of your finances and payment history.
Whether you’re applying for a conventional mortgage or another loan type like FHA, VA or a Rural Development loan, the lenders at First Pryority Bank can help. Located in Pryor and Tulsa, we’re dedicated to making homeownership dreams a reality for Oklahoma residents.
We hope this article has helped you gain a better understanding of the home loans that may be available to you. If you have any questions about how these different loan options work, or you’d like to apply for a home loan in Oklahoma, contact us today to speak with a local mortgage loan originator. We’re happy to help you make an informed decision on which loan product best meets your budget and needs.
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