Securing a mortgage for your new home is a key element in the overall homebuying process. But it’s important to know that not all mortgages or home loans are created equal. Sure, they’re all designed to help you get into the home of your dreams, but different types of loans are constructed in distinct ways, and each has its own benefits.
If you’re confused by what certain mortgages are for or what a specific home loan is meant for, you’re not alone. But we’re here to help — we’ve answered a few of the most frequently asked questions we hear from homebuyers:
What is a VA Loan?
A VA loan is a type of home loan that is specifically offered by the Department of Veterans Affairs (that’s where “VA” comes from). These loans are provided by private lenders, including banks and mortgage companies, but they’re backed by the VA to ensure that veterans and active service members or their spouses get favorable mortgage terms.
Generally, homebuyers who make use of a VA loan will pay lower closing costs and won’t have to pay a monthly mortgage insurance premium like most homeowners do.
If you want to find out if you’re eligible for this type of home loan, visit the US Department of Veterans Affairs’ website to learn more.
What is an FHA Loan?
When the US Federal Housing Administration insures your mortgage, it’s called an FHA loan. These types of loans are often utilized by families to purchase homes that they would otherwise be unable to purchase because of their income or because they cannot afford the down payment on a home.
Because the FHA is insuring the loan in your name, you’ll be more likely to get reasonable loan terms but will often be required to pay a mortgage insurance premium throughout the term of your mortgage.
FHA loans aren’t just restricted to resale homes, either. An FHA construction-to-permanent mortgage allows new homebuyers to cover the costs of construction and then transition into a long-term residential mortgage after their home is built.
More information about FHA loans is available on the FHA’s official website.
What is a Jumbo Loan?
When a mortgage exceeds the conventional loan limits set by the government, it’s called a “jumbo loan.”
While these loans often carry higher interest rates than conventionally sized mortgages, this is not due to the creditworthiness of the homebuyer. Rather, it’s simply because a larger loan carries a higher risk for lenders simply as a result of the large balance.
How Much Will My Credit Score Impact My Ability to Get a Mortgage?
Your credit score provides lenders insight into your overall creditworthiness based on a variety of factors. As a result, your ability to secure a favorably termed home loan is integrally connected to your credit score.
Much of your credit score is tied to your ability to pay bills on time, how much debt you’re currently carrying and how long your credit history is. There are a few other factors involved in calculating your score, and we recommend you check out our guide to credit scores before you start exploring home loan options.
What Documents Will My Lender Need to See During the Application Process?
Although the mortgage application process has been streamlined in recent years, thanks to services such as Rocket Mortgage, you will still need to provide a variety of documents to your lender.
Make sure you have all of the key documents, including ID, tax returns, pay stubs and purchase agreements, ready to share with your lender. Fortunately, if you’re building a new home, many homebuilders offer preferred lenders that make this process easier for you.
Be sure to check out our Borrower’s Checklist and bring as many items from it as possible to expedite the loan process.