FHA Loan Alternatives

FHA Loan Alternatives

When it comes to taking out a mortgage, there are numerous types of loans available. One of the best types is the FHA loan, which is a mortgage loan that is insured by the Federal Housing Administration. Because the loan is insured, lenders are more likely to offer better terms, like lower interest rates and smaller down payment requirements. The only catch is that the borrower has to pay mortgage insurance.

However, the FHA loan is no longer just the only game in town. There are a number of solid alternatives to FHA loans worth exploring. Lenders like Fannie Mae and Freddie Mac now also have loan programs that rival the FHA loans and other government backed loans (such as VA loans) in regards to terms. In fact, some of their mortgages even have more flexible guidelines than FHA loans.

Why Choose Alternative Loans

One of the drawbacks of the FHA loan, besides the need to pay mortgage insurance, is the the fee that’s rolled into the loan. This fee can be upwards of four percent of the total loan. Conventional loans do not tack such a fee onto the loan.

Types of Alternative Loans

The following are a few of the alternative loans that you should consider that have similarly flexible guidelines as the FHA loan but don’t charge a rolled-in fee:

  • Fannie Mae HomeReady Mortgage – This mortgage program allows borrowers to put down as little as three percent for their down payment. If you have access to a personal gift or down payment grant, you can use it to cover your entire down payment and all of your closing costs. But one of the biggest advantages of the HomeReady loan is that you can use the entire household income for your mortgage approval – typically, you’re only allowed to put down the income of the borrower listed on the application.
  • Fannie Mae Conventional 97 – Like the HomeReady loan, borrowers are only required to put down a three percent down payment with a Conventional 97 loan. Borrowers are also not required to pre-purchase home buyer education. The big difference is that the Conventional 97 loan is aimed more at borrowers who don’t need all of the additional flexibility that a HomeReady loan offers. The qualification for either loan is determined by the lender and not the borrower.
  • Freddie Mac Home Possible Advantage – This loan is more similar to the Fannie Mae Conventional 97 loan. It too only requires a three percent down payment from its borrowers. The biggest difference between the two is that Freddie Mac’s program doesn’t require as much mortgage insurance. For example, based on a $250,000 loan, the Home Possible Advantage loan requires about $40 less per month in mortgage insurance than the Conventional 97 loan.

Discuss your Options with a Licensed Mortgage Lender in Maryland Today

These are a few conventional loan alternatives to the FHA loans that you may want to consider. For additional information and advice regarding both conventional loans and government-backed loans, be sure to contact Alex Echeandia today.


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