Four Types of Mortgage Loans

The financiers are calculating personal taxes for their customers

There are four primary types of loans to consider when beginning the financing process.

Whether you are buying a home for the first time or the fifth time, the first thing you need to look into is financing options, and getting “pre-approved.” So what does that actually mean?

A lender will completely review all of your financial records from your credit score, debts, income, student loans, etc. This information will open the door to your home, literally. A pre-approval letter is extremely important when starting your home search. This will determine where you can look, what your budget is, and the condition of the property will also be a factor.

home sign

There are 4 major loan types:

1. Conventional
2. FHA
3. USDA/ VHDA
4. VA

1. Conventional
Conventional loans are for those with higher credit scores, and lower DTI (Debt to Income), and the down payment can be anywhere from 3%-20%.
If you pay less than 20%, you will have to pay for PMI, which is Private Mortgage Insurance. Once you pay off 20% of your principal payment, you can have that fee removed to lower your monthly payments.

2. FHA
FHA loan is backed by the government, and used for those whose credit score isn’t as great, they have a higher DTI, and the down payment is 3.5%. Unlike the conventional loan, you have to pay the mortgage insurance for the entire life of the loan, or at least until you refinance. It does not drop off after 20% unfortunately. If you are using this loan, it must be used as your primary residence for at least 1 year.

3. USDA/VHDA
USDA and VHDA loan is also a government backed loan, and requirements are roughly the same as above for a FHA loan. One of the benefits of a USDA/ VHDA loan is that you do not need any money down. You can get a loan for the entire sales price of the property. However, instead of mortgage insurance or PMI, there is a 1% guarantee fee of the loan price. On the plus side, this can be added to your mortgage and paid off over time.

4. VA
VA loans are reserved only for those who have served in the armed forces. This gives veterans a way to afford housing. They are able to give you financing as long as your credit score is 620, and little to no down payment, and also no mortgage insurance.

Now, it is important to know a few key factors about each of these loans. Ultimately, the bank is lending out a lot of money, and wants to make sure their money is protected. With that being said, they are likely to not lend on a falling down property with any of these loan types. For that, you’ll want to look into a FHA 203-K loan.

Each room has to have a permanent heat source. Whether it is central HVAC, or baseboard heaters. A woodstove does not count either. This is to ensure that if it gets too cold, the pipes will not freeze and burst.

USDA loans will not allow you to purchase a home in a city. Only in rural areas.

With FHA and USDA, paint chips on or in homes older then 1978 are a huge no no. They wil require the paint to be scraped and repainted before they loan on the property due to the presence of lead based paint.

Now, this is just a brief overview of the different loans, and just dipping our toes in the water on their criteria. When you are ready to start looking for a home, I would love to sit down and discuss further in detail the next steps and get you connected with a local and knowledgeable lender!

Contact Amber to help you navigate this process and get started toward owning your dream home.

 

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