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What's The Difference Between Mortgage Types
Conventional Mortgages
There are basically four types of mortgages that are available to you as a borrower. The first type is known as "Conventional" mortgages. Conventional mortgages are mortgages that are underwritten to Fannie Mae or Freddie Mac underwriting guild lines. Fannie and Freddie are basically quasi-government organizations whose purpose is to provide liquidity to the mortgage markets so that people can buy homes. They sell bonds, called Mortgage Backed Securities, to raise money that can then be lent to home buyers in the form of a mortgage secured by the property that they are buying.
These types of mortgages generally have the best rates and terms available to the public, but also have requirements that some folks aren't able to meet.
FHA And VA Mortgages
That is sometimes where FHA and VA mortgages come in. FHA (Federal Housing Authority) mortgages are guaranteed by the United State Government through the department of Housing and Urban Development (HUD).
FHA mortgage have a different set of underwriting guild lines than conventional mortgages and in many cases these guild lines are more lenient than conventional guild lines. The rates and the terms on FHA mortgages can be very attractive and competitive with conventional mortgages, but the MIP (Mortgage Insurance Premium - about the same thing as PMI mentioned before) is fairly expensive.
VA mortgages are available to veterans and guaranteed by the US government through the
department of Veteran Affairs. The VA guild lines are intended to assist veterans in obtaining home ownership and can be very flexible in this regard. The VA mortgage program does not generally require a down payment from the borrower and the seller can pay 100% of the borrower's closing costs and/or pre-paid items such as home owner's insurance, etc.. This means that a VA borrower can truly get into a home with absolutely nothing out of their pocket.
VA charges a VA funding fee that is determined by your veteran status and whether you have utilized the program before or not. VA mortgages can be a bit cumbersome to process and if you are putting money down on a property, they can start to pale in comparison to other mortgage options that are available to you.
Non-Conforming Mortgages
Non-conforming mortgages are mortgages that do not conform to Fannie Mae or Freddie Mac
guild lines for one reason or the other. Maybe the loan amount is larger than the current Fannie or Freddie limits, thereby called a "Jumbo mortgage". Or maybe you can't document your income to Fannie or Freddie's standards. Or maybe you have had credit issues before and don't meet the conforming guild lines in regards to credit history.
Depending upon the reason that you need to go non-conforming the programs are going to offer different terms and conditions. Most of these programs are more expensive than conforming products and many require a "pre-payment penalty" in the event that you pay the mortgage off before an agreed to time period.
I liken some of these programs to keeping a pet rattlesnake. The rattlesnake by and of itself is not evil, but don't be surprised if you get bit! And if you get bit, the bite can be painful and even deadly!
Considering Your Financing Options Summary
In summary, I think that you can tell that considering your financing options can be a complicated process. In my opinion, the best thing that you can do at this point is to hook up with a reputable loan officer who will go over your options with you in an organized and systematic way. As mentioned elsewhere on this site, buying your home isn't the most expensive purchase that you will ever make, financing your home is.
If you're in the St. Louis real estate market or looking to finance a property located in the State of Missouri, ValueList will be happy to talk to you about your financing options. We are a full-service mortgage lender offering a wide variety of mortgage loan products and we can tailor your mortgage to fit your particular situation.
If you're outside of the St. Louis real estate market or outside of Missouri, still feel free to call us. One of our mortgage professional will be happy to talk to you and to shoot you in the right direction. If you need, we will be happy to refer you to a local lender in your area who can take care of your mortgage financing needs.
One note, I'm not crazy about Internet lender or call-center lenders. If you're the PERFECT borrower, then they can offer some pretty attractive rates. However, tailoring your mortgage to your particular situation can be a complicated endeavor and the difference in the rates that the Internet or call-center mortgage lenders can offer is not that great to overcome the advantages of having a professional loan officer helping you. You might save a few hundred dollars, but if the person with the head set on misses something or puts you in the wrong program, will that small savings be worth it in the long haul?
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