Below is a list of the primary financing options available to home buyers. The right loan can save you some money if you know which one works the best for your specific financial situation.
Please note it is always recommended to speak with a professional lender to help identify the right financing option for you. If you don’t have a relationship with a lender, speak with your local Realtor as they will have a list of top notch local lenders in your area.
There are multiple factors that will impact the financing options that will be most recommended for you. Examples of these are: Credit Score, Debt to income ratio and funds available for down payment. Additionally, some loans may have a required insurance to protect the loan. These are known at (MIP / PMI) – Mortgage Insurance Premium (for FHA) & Private Mortgage Insurance. (for Conventional if less than 20% down). These are not to be confused with a Homeowners Insurance Policy; MIP and PMI insure the loan, not the house.
Please note that these loan types can be used in conjunction with grants and down payments assistance programs.
By definition, a conventional loan is any mortgage that is not guaranteed or insured by the federal government. These are loans require a minimum of 5% down payment and have more stringent requirements to qualify for a loan. Again this loan type requires Private Mortgage Insurance if the loan to value ratio is less than 80%. This loan type is more commonly used by those with established credit and those that have previously purchased homes.
This is the primary loan program for many Americans, especially first-time homebuyers and those who have not yet established solid credit. The Federal Housing Administration guarantees a portion of home loans, which frees lenders to broaden their acceptance standards. With FHA backing, borrowers can qualify for loans with as little as 3.5% down payment.
FHA loans do have an up-front and ongoing additional cost built in: mortgage insurance premiums. This protects the lender’s stake in the loan if you default.
The U.S. Department of Veterans Affairs helps service members, veterans and surviving spouses buy homes. The program is especially generous, often requiring no down payment or mortgage insurance. But like a lot of military operations, the approval track is built for accuracy, not speed; often taking more than 30 days to close.
This one may surprise you. The U.S. Department of Agriculture has a homebuyers assistance program. And no, you don’t have to live on a farm. The program targets rural areas and allows 100% financing by offering lenders mortgage guarantees. There are income limitations, which vary by region.