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Understanding Home Mortgages


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Understanding Home Mortgages – SC Homes and Land, LLC

mortgageReady to apply for your mortgage? Understanding the differences in mortgage types will help you obtain the best loan for your needs!

Conventional. Also known as a “conforming” mortgage, Conventional mortgages follow the guidelines set by Freddie Mac and Fannie Mae, which are major institutions in the secondary mortgage market. These institutions buy mortgages from front-line lenders, providing market liquidity that allows lenders to keep making new mortgages.

Advantages of a Conventional mortgage include:
  • Down payments as low as 3%
  • Competitive mortgage interest rates
  • Widely available
  • Waivable mortgage insurance

Mortgage insurance is required whenever the down payment is less than 20% of the home purchase price. However, Conventional loans permit the mortgage insurance to be waived, once the home owner has accomplished at least 20% free-and-clear equity. This can be accomplished by paying down the mortgage debt, or via home value appreciation, or a combination of both.

Drawbacks of a Conventional mortgage:
  • Requires a relatively high credit score
  • Less forgiving of past credit blemishes
  • Narrower debt-to-income ratios, making it harder for some borrowers to qualify

FHA. Loans backed by the Federal Housing Administration are designed to make home ownership more attainable for first-time buyers, or for anyone who may not meet Conventional loan criteria. These loans are backed by the government, which reduces risks to the lender.

Advantages of an FHA mortgage:
  • Down payments as low as 3.5%
  • Down payment funds may be provided by someone else as a gift to the applicant
  • Lower credit scores considered
  • Widely available
  • Higher debt-to-income ratios allowed, making it easier for qualify
Drawbacks of an FHA mortgage:
  • If down payment is less than 20%, mortgage insurance premiums can never be waived
  • Mortgage interest rates may be slightly higher than Conventional mortgages

VA. Loans backed by the Veterans’ Administration are designed as a benefit for military service members and veterans. VA mortgages are backed by the Federal government.

Advantages of a VA mortgage:
  • Zero down payment required
  • No mortgage insurance required
  • Lower credit scores considered
  • Higher debt-to-income ratios allowed
  • Competitive interest rates
Disadvantages of a VA mortgage:
  • Must have VA Certificate of Eligibility – can be obtained through VA office
  • Must use lender that participates in VA loan program
  • Underwriting process can be lengthier than CONV or FHA mortgages
Those who are eligible for VA mortgages should seek lenders who are experienced in handling VA mortgage applications.

Everything else. Your mortgage options are not limited to the above. There are USDA mortgages, Jumbo mortgages, and adjustable-rate mortgages (ARMs). There are different financing options for land purchases, investment properties and vacation homes. The right mortgage for you depends on your personal financial situation and type of property purchase.

Contact SC Homes and Land for referral to a reputable South Carolina mortgage lender!