Loan options for First Time Buyers - Conforming, FHA and Jumbo.

FHA loans are government-backed – these home loans are made by private lenders; however, Federal Housing Administration (FHA) insures these loans. This insurance is paid for by fees collected as Mortgage Insuarnce (MI) from mortgage borrowers as part of loan payments.

Conventional mortgage loans are not guaranteed or insured by any government agency.

Conventional mortgage loans are not guaranteed or insured by any government agency. Conventional loans can be Conforming or Non-conforming. Conforming loans are within the loans limits based on Fannie Mae and Freddie Mac guidelines.

Non-conforming loans, also known as Jumbo loans, fall outside the loan limits set by Fannie Mae or Freddie Mac and therefore cannot be purchased by them.

In most counties, a loan greater than $453,100 is considered a Jumbo Loan. In counties with high median home values, such as Los Angeles, San Francisco and New York, a loan higher than $679,650 is considered a jumbo loan. So, Conforming and FHA loans can be up to $453,100 (up to $679,650 in counties with high median home values). To find out which limit applies in your county click here.

FHA loans have less strict credit and underwriting requirements – they are “easier” to get. However, borrower will need to pay mortgage insurance premiums regardless of LTV.

For Conventional loans, any LTV higher than 80% (less than 20% down) will require Private Mortgage Insurance (PMI). Some lenders do have no MI on loans with LTV greater than 80% - however, the interest rates on these loans are higher.

Jumbo loan options for First Time Buyers are limited. Most Jumbo loans for First Time Buyers have more stringent terms -- lower maximum loans amount, higher down payment requirements (lower LTV), higher cash reserve requirements, higher credit score, etc.

Lenders consider jumbo loans to be riskier since Jumbo loans are not insured by the Government like FHA loans, nor can they be sold to Fannie Mae or Freddie Mac.

Some jumbo loans may require a second appraisal.

Jumbo loans may take longer to close since they are manually underwritten and require more supporting documentation.

The amount of loan and rate you can get is dependent on the 3 Cs - Credit history (your credit score reflects how likely you are to payoff the loan), Capacity (your ability to make monthly payments based on your income and debt load/LTV) and Collateral (the level of equity you have to cover any sudden decrease in house prices). Good credit history, low debt-to-income ratios and low LTVs/high down payments indicate low risk to lenders.

Be sure to know how much home you can afford. It is best to talk to a loan officer to help you determnine how much of a loan you can afford.

It is always a good idea to get Pre-Approved and a Pre-Approval Letter from a lender before you start shopping for a home. It gives you considerable negotiating advantage with sellers and real estate agents in a home buying transaction. Also, after going thru the Pre-Approval process, you will know a more exact amount that will be available to you for a home purchase – it avoids an unhappy surprise if you wait until you have signed a home purchase contract.

Check your credit before you begin your home buying process. If there are any errors or factors driving down your credit score, then correct them or take actions needed to improve your credit score. For example, you may want to payoff certain debts to improve your credit score.

Start saving for a down payment as early as possible to afford the highest possible down payment. Higher down payment or lower LTV means better rates and fees.

Do not forget to budget for other loan costs than a down payment. In addition to a down payment, you will need to plan for loan closing costs, including any escrow fees and cash reserve requirments.