There are three main categories of
real estate loans. Some states
and local jurisdictions may have additional categories. To view different types of loans, click
A Conventional Loan is one that does not directly involve
the government. While it does
follow some accepted guidelines, the lender is a little freer as to
what terms they can offer. Generally
a conventional loan will necessitate a higher downpayment, but there
are loan programs available that will allow a downpayment as low as
5%, and with exceptional credit, even 3% or no downpayment.
The normal debt ratio for a conventional loan is 28/36, meaning
that 28% of the borrower’s gross monthly income (before taxes are taken
out) can go to their house payment, and 36% of their gross monthly income
can go to their house payment, plus all other monthly debts combined.
Depending on the lender, the current economic situation and the
borrower’s financial situation, the lender may be able to bend these
or HUD Loans
A loan insured by the Federal Housing Administration (FHA),
which is a branch of the Department of Housing and Urban Development
(HUD), part of the U.S. government.
The money is still loaned by financial institutions, not by FHA. Because FHA is insuring the loan, lenders
are able to provide loans with a lower downpayment, roughly 3.5% of
the loan amount. The debt ratio
on an FHA loan is 31/43 (see explanation above).
This type of loan is helpful for buyers with lower income and
less cash available to purchase a home.
The ceiling (the maximum someone could borrow) on an FHA loan
amount varies from county to county, based on the cost of purchasing
a home in that jurisdiction.
or DVA Loans
A loan guaranteed by the Department of Veterans’ Affairs,
also part of the federal government.
Since they are guaranteed, the lender can safely make a loan
with no downpayment and a higher debt ratio (41/41).
To qualify, the borrower must be a U.S. Military veteran who
was discharged under honorable circumstances.
The veteran must get an Eligibility Certificate from the Department
of Veterans’ Affairs to certify that they are qualified to receive this
Are You Qualified To Buy?
Types of Loans
All About FHA Loans
The Loan Process
Veterans & Military