If you're considering buying a house, you may be overwhelmed by the varieties of mortgage financing available. Some careful research will allow you to choose the best option - one that will save you the most money and will provide you with the best security over the long term.

Some Mortgage Financing Lessons For Homeowners

By far the most popular mortgage financing options are Fannie Mae, Freddie Mac, and FHA. The federal government developed FHA in order to enable qualified borrowers to obtain affordable housing. Because FHA is responsible for insuring the loan, the lender's risk is reduced. In order to qualify, the applicant must pay an insurance premium up front which amounts to 1.5 percent of the loan amount. You can, however, simply add this cost to your loan, so that you don't have to pay it out of your own pocket. In addition, the home buyer must pay a monthly premium which amounts to .5 percent of the loan amount over 12 months. FHA may be preferable to other loan programs in that it requires a low down payment amount-only three percent of the value of the house.

"Keys To Understanding Mortgage Finances"

In order to qualify for an FHA loan, you must be able to prove that you have a steady income which is sufficient to pay your monthly mortgage bills. The FHA restrictions tend to be more lenient than others-for instance, a bankruptcy will not disqualify you, if it was discharged at least two years ago. The FHA also permits higher debt to income ratios. This means that you might be able to afford a more expensive house under FHA financing. For the most part, FHA interest rates are similar to conventional rates.

Meanwhile, Fannie Mae loans are conventional loans which are not backed by the government. If the loan to value ratio is greater than 80 percent, the home buyer must pay monthly mortgage insurance. The costs to the borrower can also be higher with a Fannie Mae loan than with an FHA loan. For instance, the borrower has to offer a five percent down payment and must have two months reserves on deposit. In addition, the borrower must pay closing costs. For a conventional loan, a borrower must have excellent credit. Without it, he or she simply cannot obtain the loan.

Mortgage Finance
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