When you’re in the first stages of searching for a home, it is extremely important to know what type of loan you can qualify for and how much you can afford. This will save you time because you will know that you are looking at a home that you are able to put an offer on. You can’t place an offer without a pre approval letter. Many home buyers aren’t aware that there are many types of loans that you can receive.
Here are the main four types of loans:
FEDERAL HOUSING ADMINISTRATION (FHA) – An FHA loan is a mortgage insured by the Federal Housing Administration which is a government agency within the U.S. Department of Housing and Urban Development. This loan has lower interest rates and a low down payment minimum as low as 3.5 percent. It also has more flexible qualification requirements. An FHA loan allows the seller to pay some of the buyer’s closing costs. On all FHA loans, two different mortgage insurance premiums are required: an upfront premium (1.75 percent of the loan amount) and a monthly premium (.85 percent of loan amount).
CONVENTIONAL – Conventional loans require a larger down payment which can range anywhere between 3 and 30 percent of the purchase price and it also may vary by the type of property you are purchasing. If you make a down payment on a home of 20 percent or more, you do not have to have mortgage insurance. If you get a conventional loan, you may be able to get an adjustable-rate mortgage. This is when your interest rate is lower towards the beginning of the loan, and higher towards the end.
RURAL DEVELOPMENT (RD) – An RD loan is available for homebuyers that purchase a home in eligible rural areas. If you qualify, you may be able to get a home with $0 down. The buyer must be an owner-occupant and be income eligible.
VETERANS AFFAIRS (VA) – A VA loan is available for buyers who have served or are currently serving in the U.S. military. There is no down payment required, no mortgage insurance, and the interest rate may be negotiable. A VA loan has VA assistance to borrowers in case of temporary financial difficulty.
Understanding loans can be a tricky process. Contact us and we would gladly help you and point you in the right direction to a certified mortgage lender to get you pre approved and on to becoming closer to being a home owner.