For a Connecticut Mortgage, What's the Different Between Conventional and Government Programs?
As you decide to purchase a home in one of Connecticut's many towns, applying for a mortgage typically follows refining your search, meeting an agent, and selecting a property. Yet, when you approach a broker or lender in Connecticut, a loan officer presents you with multiple options for conventional and government programs. If you are new to the home-buying process and have not yet worked with either a broker or lender, what should you consider about both programs?
A conventional mortgage, in Connecticut and other locations, is either conforming or non-conforming. The former indicates the loan is under the lending limit, while the latter is a formal term for a jumbo mortgage. With a 15- or 30-year term and adjustable- or fixed-rate interest, these loans require a five to 20 percent down payment, along with fees and insurance. Initial costs can be rolled into the total amount, although doing so increases the rate. Typically, the shorter the loan term, the lower the interest rate is.
Conventional mortgages generally take less time to process and are straight forward. However, because of stricter lending standards, qualifying for a conventional mortgage in Connecticut and everywhere else is far more difficult. Securing a conventional loan and better interest is contingent on a high credit score.
Fannie Mae and Freddie Mac guidelines spell out the requirements for conventional loans, including credit score. 620 is the minimum, while 720 and higher yield optimal rates.
Government loans, while similar in several aspects, stand apart in one regard: a lower down payment. Also regarding the down payment for some government loans, such as FHA mortgages, the amount can be gifted. FHA loans, as well, are assumable, meaning, if the property is sold, the outstanding amount is transferred to the new owner.
Looser lending standards make government loans more attractive to borrowers. Although these vary between FHA, VA, USDA, home improvement, and state-specific programs (such as CHFA loans in Connecticut), lower credit scores set such mortgages apart from their conventional counterparts. FHA mortgages – growing as a result of tighter lending standards – require a 500 credit score minimum, although a number in the high 600s results in better rates.
Nevertheless, while lower down payments are assets of government loans, borrowers must keep a few points in mind. Expect to pay at least one mortgage insurance premium, and rates, both fixed and adjustable, will typically be higher.
For all loans, no matter if you work with a broker or go directly to a lender, the application process is similar. Borrowers must have at least two years of steady employment history, an ideal debt-to-income ratio, and be up-to-date regarding their credit score and history.
A conventional mortgage, in Connecticut and other locations, is either conforming or non-conforming. The former indicates the loan is under the lending limit, while the latter is a formal term for a jumbo mortgage. With a 15- or 30-year term and adjustable- or fixed-rate interest, these loans require a five to 20 percent down payment, along with fees and insurance. Initial costs can be rolled into the total amount, although doing so increases the rate. Typically, the shorter the loan term, the lower the interest rate is.
Conventional mortgages generally take less time to process and are straight forward. However, because of stricter lending standards, qualifying for a conventional mortgage in Connecticut and everywhere else is far more difficult. Securing a conventional loan and better interest is contingent on a high credit score.
Fannie Mae and Freddie Mac guidelines spell out the requirements for conventional loans, including credit score. 620 is the minimum, while 720 and higher yield optimal rates.
Government loans, while similar in several aspects, stand apart in one regard: a lower down payment. Also regarding the down payment for some government loans, such as FHA mortgages, the amount can be gifted. FHA loans, as well, are assumable, meaning, if the property is sold, the outstanding amount is transferred to the new owner.
Looser lending standards make government loans more attractive to borrowers. Although these vary between FHA, VA, USDA, home improvement, and state-specific programs (such as CHFA loans in Connecticut), lower credit scores set such mortgages apart from their conventional counterparts. FHA mortgages – growing as a result of tighter lending standards – require a 500 credit score minimum, although a number in the high 600s results in better rates.
Nevertheless, while lower down payments are assets of government loans, borrowers must keep a few points in mind. Expect to pay at least one mortgage insurance premium, and rates, both fixed and adjustable, will typically be higher.
For all loans, no matter if you work with a broker or go directly to a lender, the application process is similar. Borrowers must have at least two years of steady employment history, an ideal debt-to-income ratio, and be up-to-date regarding their credit score and history.
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