Let's Discuss a Few Types of Mortgage Loans
FHA loans are mortgage loans backed by the Federal Housing Administration. This type of mortgage usually is attractive to first time home buyers. The minimum FICO score (used by lenders to determine creditworthiness) is about 580 or higher, which allows the buyer to take advantage of a lower down payment requirement of about 3.5%. The debt-to-income ratio (DTI) can vary around 43% according to lender requirements.
Conventional loans are mortgage loans backed by private lenders. They are sometimes called conforming loans because they meet (or conform to) the Freddie Mac and Fannie Mae funding standards. These home loans usually have higher credit requirements of at minimum a 620 FICO score but may be higher depending on the lender. Other requirements are about a 20% down payment and DTI ratio of 43% to 50% maximum. Again, the lender would determine the down payment specifics and allowable DTI ratio.
Jumbo loans are backed by private lenders. They are also known as non-conforming loans because they are usually selected to finance luxury properties or properties that are above the price limits of conventional loans. Jumbo loans usually have more stringent FICO score requirements due to the higher price limits on these mortgage loans and the fact that these loan types are not in demand on the secondary investment markets. The down payment amounts can usually be higher than 20% but depends on the lender requirements. Also, the lender may have stricter DTI ratio requirements, to ensure the borrower can make the potentially higher monthly mortgage payments.
Each of these loan types mentioned above can be attractive to certain borrowers, depending on their individual circumstances. Also, keep in mind that there are additional types of mortgage loans that were not included in this list, that could also be suitable depending on the borrower needs.