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What Home Loan is Right For You?

July 15, 2022
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Before you start your search for one of the new homes in Portland OR it helps to fully understand your financial situation, including determining the type of loan that is best for you. While there are different loans available, depending on your situation, the most common mortgage options are a conventional loan and an FHA loan.

Conventional loans are insured by private lenders. You typically need a solid credit score and a low debt-to-income ratio, as well as a down payment of at least 20%. Conventional loans usually have the option of a fixed interest rate or an adjustable rate, and you can pay them off over 10 to 30 years, with 15- and 30-year mortgages being the most common.

FHA loans are insured by the Federal Housing Administration, meaning the government backs these loans. These can be appealing, because they don’t require as large a down payment, or as high a credit score, and generally have easier qualifications for borrowing.

Credit scores are generally determined by your history of on-time payments, how long your credit history is, the different types of credit you have, and how you use your credit. Typically the majority of lenders look at your FICO Score, a credit scoring model created by the Fair Isaac Corporation. A poor score usually ranges from 350 to 570, while an excellent score is 800 and above. For a conventional loan, you need at least 620, though most lenders prefer higher than that. For an FHA loan, you can qualify with a score as low as 500 since the government backs the loan. However, the lower your score, the more down payment you’ll need to have.

When it comes to down payments, if you want an FHA loan, and have a credit score that is at least 580, your down payment can be as low as 3.5%. However, if your score ranges from 500-579, you will need 10% down. With conventional loans, 20% is the standard amount for a downpayment. However, many people don’t have 20% available. In that case, you will need to pay for private mortgage insurance.

Mortgage interest rates are influenced by multiple factors, including the condition of the economy, the Federal Reserve, overall demand, your financial history,  the amount you are borrowing and your total down payment. This is applicable for both types of loans.

Be aware that there are limits to most loans. For conventional loans this year, the limit in the lower 48 states is $647,200. FHA loan limits are based on your county. In Multnomah County, the limit for a FHA loan is $598,000.

The choice of loan ultimately comes down to your credit score and your available down payment. The higher your numbers, the more likely a conventional loan is your best choice for buying one of the new homes in Portland OR. An FHA loan is probably better if your numbers aren’t high enough, though at least you have an option, which can put you on the track to improving your credit and gaining equity over time, which could be used in the future for a down payment on your next home.

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This post was written by Garrette Custom Homes

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