The “American Dream” of homeownership is supported by federal programs that either insure loans made by lenders (such as FHA, VA, and USDA) or purchase loans from lenders to package them into mortgage-backed securities (like Fannie Mae and Freddie Mac).
Loans that meet the standards set by Fannie Mae and Freddie Mac are called conforming loans, and can only be used for borrower-occupied, single-family homes up to four units.
FHA conforming loan qualifications include:
- FICO® score at least 580 = 3.5% down payment.
- FICO® score between 500 and 579 = 10% down payment.
- MIP (Mortgage Insurance Premium) is required.
- Debt-to-Income Ratio < 43%.
- The home must be the borrower’s primary residence.
- Borrower must have steady income and proof of employment.
VA loans require a Certificate of Eligibility, but require low or no down-payments. USDA loans also require no money down and are only eligible for qualifying rural homes.
Conventional loans are not government-insured. Borrowers must have 620 or higher credit scores.
