4 Types of Loans You Need to Consider Before Purchasing Your First Home
Monday, May 18, 2020, 6:00 AM | Leave Comment
The purchase of your first home is an event that involves a great deal of planning and a lot of excitement.
You will learn many new terms regarding real estate and financing, as you explore your options.
Here are four of the most common home mortgage types and the features that make them a good choice for specific needs.
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Conventional Loans
These loans are not backed by any government program. Conventional loans often have tougher requirements than government sponsored loans and may have a higher interest rate. They often require a 20 percent down payment for the purchase of the home. In some cases, a conventional loan may be offered with a lower down payment, but private mortgage insurance may be required to secure the financing. The amount you can borrow is generally limited.
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FHA Loans
The Federal Housing Authority (FHA) offers home mortgage financing that is backed by the U.S. government as an effort to increase home ownership opportunities for Americans. In order to do this, these loans require only a 3.5 percent down payment, which is generally more affordable than the 20 percent required by conventional loans. Mortgage insurance premiums become a part of your mortgage payment, but these are generally less than you would pay if required by conventional financing. There are limits to how much you can borrow under the FHA guidelines.
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VA Loans
Veterans Administration (VA) loans are home mortgages that are acquired through banks and financial institutions, but which are backed by the federal government. These loans are offered to individuals who have served in the military and their spouses. They allow current and former service members to purchase homes with a small or sometimes no down payment. You must verify your eligibility for the loan, and you must meet occupancy requirements. Private mortgage insurance is not required for VA loans.
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USDA Loans
The U.S. Department of Agriculture also has a program that offers loans to low and middle-income individuals who wish to purchase a home in a rural area. USDA loans cover both new construction and homes being rehabilitated in rural communities. They guarantee 90 percent of the loan amount, and have certain requirements, such as ability to repay the loan, a minimum credit score of 640 and willingness to use the property as a primary residence.
A loan specialist at your financial institution can provide detailed information on each of these types of loans. If you spend a bit of time reviewing the requirements and consequences of these loans, you will be able to find the right one for your particular needs. In this way, you will be able to secure your finances more strategically for the future.
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