The multitude of financing options for those looking forward to buying a home is certainly overwhelming. However, making sure that you understand the basics of property financing will allow you to make informed decisions and choose what’s best for you and your family. Homebuyers should also make sure that they fully research and thoroughly understand the market where they want to invest in certain properties. The location might also determine if you are entitled to incentives and other financial perks.
Financing-wise, there are multiple options to choose from, as described by professional real estate investors, below.
These types of loans are not insured or guaranteed by the Government in any way or form. These are usually fixed-rate mortgages and although they have stricter requirements, they are usually less expensive than guaranteed loans, in the long run. Most conventional loans will require the following, however.
- Bigger down payments;
- Higher credit score;
- Lower income to debt ratios;
- Private mortgage insurance.
While these requirements are more difficult to meet, these types of loans will end up being a better alternative to government-guaranteed mortgages, in the US. In other states, like Canada, the Government offers perks to those choosing their first-time buying programs.
Conventional loans are split into two categories: conforming loans and non-conforming loans. Conforming loans follow the rules and guidelines set by the government-sponsored enterprises. In more expensive areas, these limits are higher since the market dictates the sale prices. Loans above the fixed amount are usually called jumbo loans and have a tad higher interest rate.
Non-conforming loans have rules established by each lender and for those, you might need to research the guidelines of different lending institutions before deciding, realtors say.
Government-Facilitated Loans for First-Time Homebuyers
The US Federal Housing Administration may not have the best programs to facilitate the purchase of a home. But the Canadian Government surely offers some financial perks for those choosing to buy or build a new home.
The HST Housing Rebate Program (Canada)
Canada is one of those countries that has a well-designed and highly functional program that will help its residents to invest in their dream properties. For instance, the HST Housing Rebate program allows homeowners to recover up to $16.080 or $30,000 for properties built or purchased in the previous two years to apply for the rebate. While this isn’t a financing option per se, it allows homeowners to recover part of their investment, usually, the part that is necessary for the down payment when accessing a loan.
The new home HST rebate program applicants must meet the following criteria for being eligible for the rebate.
- The house must be their principal residence.
- The construction must have been done in the past 2 years;
- The rebate is valid for newly-built homes, newly-built home additions (that double the size of your property), fully re-gutted homes.
The HST New Home Rebate program allows those who have built or purchased a new home to recover some of the sale taxes paid in the process. To be entitled to a home rebate, the applicants must meet all the requirements described above.
While this is not a government-guaranteed loan for homebuyers, it facilitates and encourages enormously the Canadian population to build or invest in newly-built properties. The amount recovered can be used for a home renovation or even for paying a big lump of the loan. So, it comes as an extra advantage to those purchasing (or building) new homes.
In the US, FHA Loans are loans offered by the Federal Housing Administration. This institution is part of the US Department of Housing and Urban Development and provides a wide range of housing programs, usually targeted at first-time homebuyers. In these loans’ case, the applicant will enjoy lower down-payments as well as less stringent requirements when it comes to credit history. This means that they can make down payments as low as 3.5%. However, there are statutory limits on which the loan must fit.
VA Loans are targeted at US veterans and while the US Department of Veteran Affairs is not offering any type of loan, it guaranteed mortgages made by qualified veterans and other US military workers. These guarantees offered allow service people to obtain loans with extremely favourable terms and without a down-payment.
Local and state governments in the US might also have special loan and mortgage programs for homebuyers, so make sure to check in with those, if you want to broaden your chances.
There are numerous creative ways in which homebuyers might find financing for their home purchases.
Seller or Owner Financing
This is a great way to finance your way into a new home. This is a type of loan that is provided by the current homeowner who is selling their property to the buyer. This is a great financing solution as it eliminates the need to obtain financing through a lending institution. If homeowners have a hard time selling their home, they are very likely to offer seller financing. This means that they sell the property to the buyer, who will have to sign a promissory note. The note includes the repayment of the loan and the applicable interest rate, as well as what happens in case of a default.
When homeowners experience financial hardship or their property is owned by a lending institution, the bank that owns the home might allow the property to be sold for significantly less than its market price. This is usually carried out through a short sale. Usually, these homes can be purchased for 20% less. In some cases, the discount is even bigger. However, these transactions need bank approval before closing.
These are some of the best ways in which those looking forward to purchasing a home can find financing solutions and aid their transactions. While these options depend on the state in which you find yourself in and even country, you must know that there might be similar options like the ones described above. Realtors say that before purchasing a home, you must first check in with your lending institution and only afterwards getting in touch with a real estate agency.