There are many different options available to buyers today. If you’re ready to buy a house, and you’d like to find a loan program that’s a good fit for you, you can find more information below. Your primary goal is to find a mortgage loan that will allow you to buy a home without breaking the bank. There are many different ways to get there, and by comparing home loans side-by-side, you’ll have a huge advantage.

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Where to Start Looking for a Mortgage

Different home loan programs are targeted towards different types of buyers, which means they have different advantages. You should focus on finding a loan that’s in line with what you’re looking for.

As you go over different kinds of loans, you should take certain things into consideration.

Ask yourself questions like:

Which loan requires the lowest upfront payment?
Which loan will be the least expensive overtime?
Which loan offers the most affordable monthly payment?
What kinds of loans are available to someone with my credit score?
What kind of impact does my income have on my loan eligibility?
What price range am I buying in?
How long will I be staying in the home that I buy?

If you go over your answers to these questions, you’ll be able to get a better understanding of different mortgage types and how well these solutions might work for you.

What Are the Different Types of Home Loans?

Conventional Loans

This is one of the most popular types of mortgages for home buyers, and for good reason. These loans have flexible terms, excellent rates, and offer a range of options for down payments.

It’s common for some types of conventional mortgages to be referred to as “conforming loans.” This term means that the loan confirms with Fannie Mae and Freddie Mac standards. The majority of lenders in the United States offer this loan type. You can get these loans from mortgage companies, banks, and credit unions, and the rates on these loans are often very competitive. You’ll need to have a credit score of 620 or higher in order to obtain a conventional loan from these lenders.

Another advantage of this type of loan is that your down payment and credit score determine your mortgage rate. This means that you’ll be able to get a better deal if your finances are in great shape.

FHA Home Loans

This type of loan is particularly popular with people that are buying a home for the first time. They offer a number of benefits that make them particularly appealing to new home buyers.

The requirements for down payments are low, as are the credit score requirements. Furthermore, income guidelines are very flexible. For many people, FHA mortgages are what puts home ownership in reach.

These loans have more lenient income and credit guidelines because they are backed by the Federal Housing Administration. The interest rates on these loans also tend to be low.

VA Loans

If a buyer has served in the military, they could qualify for a loan that requires zero down payment and is backed by the U.S. Department of Veterans Affairs.

These mortgages are considered by many to be one of the best types of home loans available. Monthly mortgage insurance is never a requirement, and rates are lower than they would be with standard loans.

If buyers have U.S. military service history, this loan should be their top consideration. Veterans, service members on active duty, and the surviving spouses of military members are eligible for these loans.

USDA Loans

The home mortgage program backed by the U.S. Department of Agriculture is referred to by a range of names, including Single-Family Housing Guaranteed loans, Rural Development loans, and of course, USDA loans.

This loan is aimed at buyers with a low to moderate income. In order to take advantage of the loan program, buyers must purchase a home in a suburban or rural area. The program eliminates the down payment requirements, making homeownership more accessible to many buyers. Mortgage insurance and interest rates are also reduced.

Learn more about USDA loans

USDA Loan Benefits:

Down payments aren’t necessary
Mortgage insurance fees are low
Mortgage rates are below market rate
Loans are available to buyers with credit scores of 640 or higher
There are no limits on loans

USDA Loan Drawbacks:

The property must be an area that the USDA classifies as rural
30-year fixed rate loans are the only option available
Household income limits must be met

Jumbo Loans

What happens if you live in an area where home prices are high?

The loan limits for conventional loans are fairly high, with limits of $766,550 in most areas. In some areas, limits may be even higher. Unfortunately, in some areas with high real estate values, that amount still isn’t enough to purchase a home. Non-conforming loans, which are sometimes referred to as jumbo loans, aren’t subject to the loan limits set by Fannie Mae and Freddie Mac. It’s possible to receive jumbo financing for millions.

You may assume that interest rates will be a buyer if you’re borrowing more. However, the rates for jumbo loans are similar to the rates for conventional loans. In some cases, they may even be lower. Of course, in order to be approved for these loans and get a low rate, you’ll need a high credit score.

FHA 203K Rehab Loans

You can buy a home for less if you buy an older property in need of renovations or repairs. Of course, in order to do this, you’ll need to have money to cover the cost of renovations. You can get the funds you need from a 203k loan. This FHA mortgage is designed to let you borrow the money you need to purchase a property and the funds you need for repairs.

There are many properties on the market that are in poor condition, including short sales, foreclosures, and properties that are on the open market. Significant repairs are often necessary before these properties qualify for financing. Unfortunately, in most cases, it isn’t possible to start renovating a home you haven’t purchased.

FHA 203k mortgages provide a solution to this. You can purchase the home in its current condition and borrow additional money that will cover the cost of repairs and renovations. In many cases, buyers gain quite a bit of equity from these changes.

Learn more about an FHA 203(k) rehab loan

FHA 203K Loan Benefits:

You can finance a property purchase and renovations simultaneously
Buying a fixed-upper is a great way to save
Bundling everything into a single loan means you’ll have less hassle and fewer closing costs
Borrowers can receive up to $35,000 to put towards repairs and renovations
Income eligibility and credit score requirements are lax

FHA 203k Loan Drawbacks:

You’ll be required to pay monthly MIPs as well as upfront payments.
FHA loan limits apply
Luxury improvements are not permitted

Adjustable-Rate Mortgage Loan

30-year fixed rate loans are the most popular options for buyers. These loans keep monthly costs low and also keep costs stable. However, if you intend to live in your property for fewer than 10 years, an adjustable-rate mortgage (ARM) could be a better option for you.

These mortgages have a fixed interest rate initially, but this rate only lasts for a period of time. Once that point has passed, the rate will rise with the market. However, if you intend to refinance or move before you reach that point, you won’t need to be concerned that your rate will go up.

ARM loans typically have an introductory rate that are below the rate for 30-year fixed mortgages. In spite of that, the rate will be fixed for a pre-specified period of time. 5, 7, and 10 year periods are all common. An ARM loan could lead to significant savings. Furthermore, caps are built into ARMs. These safeguards place limits on how much your rate can rise.

Adjustable-Rate Mortgage Benefits:

For up to 10 years, you’ll be able to pay a much lower rate
You could save thousands in interest during this time
You’ll have ample time to sell the property or refinance before the rate is adjusted

Adjustable-Rate Mortgage Drawbacks:

Both your monthly payment and rate can increase once the fixed-rate period has passed
If you’re not confident that you’ll move or refinance before the period ends, you’ll be taking on a significant risk

Choosing the Right Home Loan

While selecting your mortgage can be complicated, you won’t have to figure things out on your own. You’ll have a mortgage broker or loan officer assisting you throughout the process, which means you’ll be able to make the best possible choice.

With that said, you should be aware that your options will be limited based on the broker or lender you work with. Even if you qualify for a USDA mortgage, your lender may not mention this to you if they don’t provide this type of loan. This is why you’ll want to find out more about your choices on your own.

Look at the loan types listed above and identify the options that are most suitable for you. Bring this up to your loan advisor. They can work with you to compare initial fees, long-term costs, loan rates and requirements so that you can find the best solution for your home purchase.

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