Which type of loan should I consider when buying my home?

As you may know, a substantial amount of changes have occured in the loan industry over the past few years... As the dust has settled a bit from all the chaos of the past, a few options remain. The most common loan programs utilized today are either conventional financing (Fannie Mae or Freddie Mac loan products) or government loan programs (FHA, VA, etc.) What drives someone to a particular loan program you may ask? There are a lot of parameters that we analyze when deciding which loan product is best suited for our clients, but one of the first deciding points is the down payment. If a client is looking for the smallest amount down, we typically turn to government offered loan products. FHA for example requires only 3.5% down, allows for a gift from relatives for the down payment and also allows for up to a 6% credit for non-reoccurring and re-occurring closing costs. The FHA loan program also has more leniency when it comes to FICO scores. Currently the minimum FICO score required is 640. Lately the Federal Housing Administration has been slowing increasing the monthly mortgage insurance rate to offset the higher than normal default rates and to better capitalize their insurance funds. On the other hand we have conventional financing, which was generally used as the product of choice for situations where large down payments were being made. As Private Mortgage Insurance (PMI) companies have slowing been coming back to the market, the down payment requirements have now been reduced to a minimum down of 5% to qualified borrowers. However, the borrowing requirements are much more stringent than government financing in regards to FICO scores, reserves and where the down payment money is coming from. Recently, some of our investors and PMI companies have released the option of Lender Paid Mortgage Insurance for the instances where less than 20% down is made. In exchange for making a monthly mortgage insurance payment, the interest rate is initially set higher (typically .25% higher to rate) and no further mortgage insurance payments are required. This saves a very good chunk of money per month with the monthly mortgage insurance out of the way.