What Residential Home Loan is Best For You?
FHA? VA? Conventional? Jumbo?
Buying a home can be an overwhelming process. One of the first things you need to do is get prequalified with a lender. Your local real estate professional can help you through the process by giving you a referral to reputable lenders in the area.
There are several different types of home loans to choose from when purchasing a residential home, condo or townhome. The main 3 types are Conventional, FHA, and VA. There are different qualifications for each one.
For example; if you are a Veteran or currently serving in the U.S. Military, you may qualify for a VA Loan. A VA loan is guaranteed by the Veterans Administration. A VA loan is a great option for Veterans and Active Duty Military due to the Zero Down terms. The member is able to come to closing with no money down. Sometimes, sellers are willing to give an allowance towards closing cost and this also helps the buyer.
An FHA loan is a great option for buyers who may have less money saved to put down and therefore, is able to qualify with a 3.5% down payment. FHA buyers are also able to ask for seller concessions for closing cost. Many buyers will choose an FHA loan due to the lower down payment and less out of pocket expense if the seller chooses to pay some of the buyer's closing cost. FHA loans often have PMI(Private Mortgage Insurance) added to the monthly payment. PMI is insurance that protects the lender if the buyer defaults on the loan. PMI insurance is a monthly fee added to the payment. It can sometimes be taken off when the buyer has at least 20% equity in the property. The buyer would need to request this of the lender, and the lender would have to make the final approval.
A Conventional loan is a great option for buyers with higher credit scores and buyers who have more funds to put towards the purchase price as a downpayment. Most Conventional Loans avoid the PMI charge that is added to the monthly payment if there is not a 20% down payment. In other words, in order to avoid paying the PMI, a buyer would need to put down a 20% downpayment.
There are other types of loan products as well. Sometimes lenders will offer an 80/20 loan. This basically means the lender will do 2 loans, one for 80% and the other for the remaining 20%. The 2nd loan/mortgage will normally be at a higher interest rate. These loans are not very common in today's market.
There are also Jumbo Loans. These loans are for higher limits than the regular conforming limits. If you are looking to buy a mansion, then this may be the loan for you.
For more information on different loan types check out these articles from other professionals in the business.
There is lots of information out there. The home buying process can be overwhelming but that is why you have the right team helping you. Most Realtors are able to point you in the right direction. If you have questions, I would be happy to help, or refer you to someone who can.
It may be an overwhelming process, but the reward is great! Homeownership is a valuable asset and something that has proven to provide value for future years to come.