Buying a home is a big and exciting purchase. For many people, it’s the biggest purchase they’ll make in their lifetime. Of course most people finance a home over a long period of time using a mortgage. But even if you get a home loan, you’ll have to come to the table with the money to cover the down payment and associated closing costs. Just how much money you’ll need at closing depends on the type of loan you are using to finance the purchase. For example, here’s a quick breakdown of the requirements and advantages of four common types of mortgage loans. Remember, there is a wide range of options in each of these categories that a PrimeLending home loan expert can walk you through.
Conventional Home Loan
A conventional home loan is a mortgage that is not insured, or guaranteed, by the federal government. They’re popular with borrowers who have good credit, a stable job and income, who can afford a down payment and people who are financially stable overall. Conventional loans generally offer much more flexible terms and fewer restrictions than government-backed loans, and do not require mortgage insurance if you put at least 20 percent down on a purchase, which makes them more affordable home loans. Conventional loan rates are also often quite low, since the borrower is known to be financially stable with good credit.
FHA Home Loan
If you’re working with limited income or money for a down payment, a government-insured Federal Housing Administration (FHA) home loan could be the right solution for you. FHA home mortgage loans offer a low 3.5 percent down payment, flexible income and credit requirements and low closing costs. These are popular loans for first-time homebuyers.
USDA Home Loan
The USDA loan, or USDA Rural Development Guaranteed Housing Loan Program, is another type of government-backed loan. Originally designed to provide a mortgage alternative to rural property buyers who had limited financing options, the USDA home loan is becoming a viable mortgage option for people who want to live away from cities and enjoy country living. But even if you live in a suburb, you may find you can qualify for some USDA programs. The USDA loan requires no down payment, has low interest rates that aren’t tied to credit score or down payment, and offers flexible credit guidelines.
VA Home Loan
A VA home loan is a great benefit to military personnel during and after their service. VA home loans are partly guaranteed (typically a quarter of loan value) by the U.S. Department of Veterans Affairs and offer advantages such as no down payment, higher loan value, no private mortgage insurance, a limit on closing costs and other benefits.
Although you’ll want to start saving long before you ever apply for a loan, understanding the types of mortgage loans can help you determine approximately how much you’ll need to save up.
If you’re in the market for a new home, start your journey to homeownership with The McMullen Group. Contact one of our mortgage lenders today to get details on your loan options and start the application process.