Here’s a quick reference on the four major loan types available for home buyers:
1) Conventional: this is the most common and usually most attractive option of the four. The minimum down payment is 3% on a primary residence, the PMI (mortgage insurance) is less expensive than FHA, and the max loan amount is $417,000. Loan amounts over $417,000 are considered Jumbo loans and have additional guidelines (hoops) to jump through. Gifted funds are allowed only after the borrower has their own 5% into the transaction. For a vacation home loan, you need to put down 10% and for investment property you’ll need 20% down. Whenever you are putting down 20% or more, the PMI is eliminated, which saves the borrower on their monthly payment.
2) FHA: this used to be known as the loan for “first time home buyers”, until they raised the mortgage insurance to a high enough level that makes FHA more expensive than conventional. There are some niches that FHA is still well suited for – FHA allows for the borrower to use gifted funds for ALL of the down payment and costs. Maximum loan amount is $346,250 in Maricopa County. Appraisals can be more sticky and some sellers have the perception that FHA loans are tougher to close than conventional loans, thus making it more difficult for an FHA borrower to get their offer accepted when competing against offers from conventional borrowers.
3) VA: Veterans can take advantage of this program and the benefits are two-fold; zero down payment and no mortgage insurance. It’s a great program, but the borrower must have their VA benefits. Max VA loan amount is $417,000. Anything above $417,000 requires a 25% down payment on the difference between the $417,000 and the sales price. For example; sales price is $467,000, down payment would be only $12,500.
4) Private (hard) money: For those who cannot qualify for the above options, there is hard money. These loans come with higher down payment requirements (20 to 40% down) and higher interest rates. This is a good option for those trying to close quickly (within days), cannot qualify for other loans due to credit or income issues, and plan to hold onto the loan for a short period of time.
If you have further questions or would like to discuss your options, please don’t hesitate to contact us at 602-912-0222 or email us at info@orionmtg.com
