What Home Loan Is Right For You?

Understanding the difference between FHA, USDA, MHDC and conventional loans can help you avoid unnecessary time and expense when you try to qualify for a mortgage. FHA, or the Federal Housing Administration, insures or “backs” loans within certain parameters and through certain lenders. A conventional mortgage is not backed by any federal agency, and you can obtain one from just about any lender, such as a mortgage company or a bank. At this current moment in time the minimum credit score you MUST have to obtain ANY loan is 620.

QualificationsThe FHA uses a credit score of 620 to determine whether you can qualify automatically for a loan. In addition, you can qualify for FHA loans one year after Chapter 13 bankruptcy, two years after Chapter 7 and three years after a foreclosure. With a conventional mortgage, you may have to wait two to four years or more after these events to qualify.

Down PaymentsFHA loans require a lower down payment, typically between 3.5 percent and 4 percent of the purchase price. Conventional loans require higher down payments, which can range anywhere between 10 percent and 30 percent of the purchase price. The conventional down payment percentage may also vary based on the type of property, such as whether you are buying a single-family home or a condo. The FHA will allow you to accept a “gift” of money as a down payment, but conventional mortgage lenders usually will not.

USDA Guaranteed Home Loan – This is the most popular and widely used option. It allows prospective home buyers to purchase in a rural designated area and has a higher income limitation than the USDA Direct loan. It allows for buyers to have a qualifying income of up to 115% of the area median household income. Income is the key difference.

USDA Direct Loan – Not as common as the Guaranteed USDA Rural Home Loan. The main reason is that they carry very strict income limitations for qualifying applicants. You must have a very low income (80% of the area median household income) in order to qualify. Applicants also must be without adequate housing and be able to afford the housing payment (including taxes and insurance) which can be up to 26% of the applicant’s monthly income.

MHDC/Missouri Housing Development Commission, the state housing finance agency, offers first-time home buyers the opportunity to own a home.

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