Thinking about buying home, but not sure what type of loan you should get? Here is a breakdown of the four types of loans.
A conventional loan is a home loan not insured by the federal government. You will need to have good credit to use this type of loan. A score of 620 is the minimum credit score you can have. A conventional loan is also the only option for investors; people who want to buy a property that isn’t their primary residence. A down payment of anywhere from 5-20% may be required. If you put 20% or more down you will not pay mortgage insurance which is a huge plus. If you don’t have that much to put down, you will pay premium mortgage insurance (PMI), but only until the mortgage is less than 80% of the value of the home. The PMI that you do pay would still be cheaper than a FHA loan. The PMI would be .5% to 1% of the loan amount each year. A negative aspect to conventional loans is that the interest rates tend to be higher. Also, the maximum loan that you can take out is only $453,100.
An FHA (Federal Housing Administration) loan is managed by the Department of Housing and Urban Development, which is part of the federal government. The plus side for this type of loan is that you may be approved for a loan with a credit score as low as 580. Also, the down payment can be as low as 3.5% of the purchase price. The downfall is that you will have to pay PMI for the entire life of the loan, no matter how much you put down. With FHA loans, you have to put down 1.75% of the loan amount upfront and then pay .45% to 1.05% each year for PMI. FHA loans do have a limit of how much you can borrow, which is determined by the county. If you plan to use a FHA loan, that property must be for your primary residence.
A VA (Veterans Affairs) loan is a great option for anyone who has served in the military as well as their family members. It is similar to an FHA loan, except you can finance 100% of the loan, meaning no down payment. Keep in mind that putting money down is a good thing since you wouldn’t be putting interest on it, saving you money in the long run. With a VA loan, you also don’t have to pay mortgage insurance which is a great benefit. You do however have a VA loan fee of .5% to 3.3% of the home value, which can be added to the loan. The funding fee is exempt for veterans with any percentage of VA disability as well as surviving spouses. Another great benefit to using a VA loan is that you get the lowest interest rate of all four loans.
A USDA (United States Department of Agriculture) loan is only for rural residents who have a steady, low to moderate income and were unable to obtain housing through a conventional loan. Your income can not exceed 115% of the adjusted area median income which is defined by county. This type of loan also doesn’t require a down payment, but does have PMI.
A mortgage lender will always be there to help guide you through the process and pick the right loan, but it’s always good to be educated before going into a deal.
If you have any interest in buying or selling, we would be more than happy to help. PRODUCER Realty can get your home sold in less time and for top dollar. We deliver exceptional results for our clients by providing world class service. Call PRODUCER Realty today at 864-438-5050.