Editor’s Note: Following the devastation from Hurricane Helene, perhaps you are thinking about leaving the mess behind and moving. If that’s your case, Shawna Woodward has some timely advice on mortgage loan options.
Understanding the world of mortgage loans can be daunting, especially with the variety of options available to homebuyers in Georgia and the “advertised” interest rates promoted online. Understanding the different traditional mortgage loan types will help you make an informed decision that best suits your financial situation and homeownership goals.
The first place to start if you consider buying a home is to secure your financing. Here’s a comprehensive guide to the traditional mortgage loan options available in Georgia.
Conventional Loans
Conventional loans are not insured or guaranteed by the federal government. They are typically offered by private lenders such as banks, credit unions, and mortgage companies. These loans generally require a minimum down payment of 3-5%, but a 20% down payment is often recommended to avoid private mortgage insurance (PMI). Currently, this loan has a loan limit for 2024 of $726,200 for most areas in Georgia, but it can vary by county. This is the only traditional mortgage product that can be used to purchase a home that will not be your primary residence. It is commonly used to purchase a second home or investment property.
Credit Requirements: Typically requires a credit score of at least 680. This product has stricter credit and income requirements compared to government-backed loans. They charge PMI to the borrower if the down payment is less than 20%. Potentially offers lower interest rates for borrowers with good credit.
FHA Loans
This is the most common loan because it is backed by the Federal Housing Administration (FHA), these loans are designed to help first-time homebuyers and those with lower credit scores. The minimum down payment is 3.5% and with this loan, there are government programs that provide down payment assistance to offset this expense for those who qualify. The loan limits vary by county; for most areas in Georgia, the limit is $472,030 for single-family homes. This loan requires both an upfront mortgage insurance premium (UFMIP) and annual mortgage insurance premiums (MIP).
Credit Requirements: Requires a minimum credit score of 580 with a 3.5% down payment, but borrowers with a score between 500-579 may qualify with a 10% down payment. Not all lenders will work on credit scores under 620, so you need to discuss your estimated credit score with your Realtor first to ensure you are referred to a lender that can work with your situation.
VA Loans
This loan is only available to veterans, active-duty service members, and certain members of the National Guard and Reserves, VA loans are backed by the Department of Veterans Affairs. Those who qualify with VA eligibility can use this loan multiple times over their lifetime and possibly even on multiple homes at once. This is one of the very few loan options that have no required down payment and no mortgage insurance premiums added to the payment.
Additionally, there are no loan limits for qualified borrowers, but limits may apply for loans with no down payment, and the VA may require the borrower to pay a down payment or elevated VA funding fee based on loan amounts.
Credit Requirements: The VA doesn’t set a minimum credit score for its loans. Instead, they rely on loan originators to ensure a borrower has a satisfactory credit risk. Mortgage lenders who underwrite VA loans typically require a FICO score of at least 620.
USDA Loans
These loans are backed by the U.S. Department of Agriculture, USDA loans are designed for rural and suburban homebuyers who meet certain income requirements. These loans have geographical restrictions but have no down payment required. They generally require a minimum credit score of 640 and the borrower must meet certain income cap limits, which vary by location and household size. Additionally, they offer lower mortgage insurance costs compared to FHA loans.
Jumbo Loans
Jumbo loans exceed the conforming loan limits set by the Federal Housing Finance Agency (FHFA), currently set at $726,200, and are used to finance high-value properties. A Jumbo loan will require a down payment of at least 10-30%. The amount of the down payment may also increase as the loan amount increases. These loans come with higher interest rates than conforming or government-backed loans and a higher minimum credit score, generally over 720.
A key piece of advice would be to wait until your credit score is at least 620 before you speak to a lender. Any score under 620 will cost you higher fees in closing costs and result in an elevated interest rate. Additionally, make sure you have a realtor helping you who understands loans and requirements, offering you educated support in helping secure your financing properly.
Government-backed mortgages were created to promote homeownership by making it more affordable and are the number one product consumers qualify for. They come guaranteed by the U.S. federal government, meaning if a borrower doesn’t make payments, the government will step in and cover some of the lender’s losses. These are great loan options for the majority of borrowers, but come with caveats, such as third-party property inspections that could deny the loan for any properties in need of repairs or improvements.
Selecting the right mortgage involves evaluating your financial situation, credit score, down payment ability, and long-term homeownership goals. Consulting with a knowledgeable mortgage lender or financial advisor can help you navigate these options and determine the best fit for your needs. Whether you’re a first-time homebuyer, a veteran, or looking to purchase a high-value property, understanding these traditional mortgage loan options will empower you to make an informed decision in the Georgia real estate market, and help alleviate unnecessary headaches in the long run.
For more information, visit Shawna’s Thought Leader page HERE.
Shawna Woodward
130 North Belair Road
Evans, GA 30809
Phone: (706) 993-1133 or (706) 399-8707
Website: https://www.mhpaugusta.com/
