To continue our homebuying education on finances and affording a new home, Ryan Homes at Brunswick Crossing details the types of home loan programs in Maryland:
Conventional loans. A conventional loan is a fixed rate mortgage that’s not secured by a government-sponsored entity, such as the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA).
Conventional loans are defined as conforming or non-conforming loans. Conforming loans comply with guidelines, such as loan limit, that are set forth by Freddie Mac or Fannie Mae, according to Investopedia. Non-conforming loans are provided by portfolio lenders and comply with guidelines that are set by a particular lending institution that’s underwriting the loan.
Conventional loans are typically harder to qualify for due to their strict criteria. A down payment of a conventional loan is between 3 and 20 percent. When a down payment is less than 20 percent, home buyers usually have to pay for mortgage insurance (PMI). Home buyers must have a credit score of 620 or higher.
- FHA loan. As part of the U.S. Department of Urban Housing and Development, FHA provides various loan programs that are typically easier to qualify for than conventional loans.
This is especially recommended for first-time home buyers with a lower down payment of about 3.5 percent and lower credit score of 580 or higher. All FHA loans have upfront and monthly PMI.
VA loan. A VA loan is a mortgage loan that’s guaranteed by the U.S. Department of Veterans Affairs. While the VA doesn’t make loans, it guarantees home loans by qualified lenders, which allows veterans and military service people to obtain home loans on favorable terms.
It’s typically easier to qualify for than a conventional loan, as it requires no down payment and a minimum credit score of 630. A funding fee is required unless the home buyer has disabled status through the VA.
U.S. Department of Agriculture (USDA) loan. A USDA loan is “issued through the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, by the United States Department of Agriculture,” according to NerdWallet.It requires no down payment and a minimum credit score of 620. This house loan requires an upfront PMI of 2.75 percent and a monthly PMI of 0.5 percent.
This loan type is available for individuals or families without “decent, safe and sanitary housing” who are unable to secure a home loan from traditional sources and have an adjusted income at or below the low-income limit for the rural area where they live.
In addition to fulfilling those requirements, the home buyer must “demonstrate the willingness to meet credit obligations in a timely manner; be a U.S. Citizen, U.S. non-citizen national, or qualified alien; have the legal capacity to incur the loan obligation; have not been suspended or debarred from participation in federal programs; [and] purchase a property that meets all program criteria.”
It promises down payment and closing cost assistance, a 30-year fixed mortgage rate, and homebuyer education, through one of three products: Grant Assist, Loan Assist and Rate Assist.
Maryland HomeCredit, also “known as a ‘mortgage credit certificate’ is issued to the homebuyer at the time of...purchase...and allows the homeowner to claim a federal tax credit of up to $2,000 each year for the life of the loan. The amount that can be claimed each year is based on the amount of mortgage interest paid on the loan.”
One of the most popular options is Maryland SmartBuy, “a special home purchase program that makes available selected state-owned properties for sale while removing eligible student debt.”