Which Type of Loan is Right for You?
More than 80% of homebuyers purchase their home through financing a mortgage.
Work with a lender you can trust to decide which loan option is best for you.
Conventional Loans
A conventional mortgage is a home loan that isn’t backed by a government agency, such as the FHA or VA. Conventional mortgages often meet the down payment and income requirements set by Fannie Mae and Freddie Mac.
Requirements:
Minimum down payment of 5%
Minimum credit score of 720 (higher score = better interest rate)
FHA Loans
An FHA loan is a mortgage insured by the Federal Housing Administration designed for low-to-moderate-income borrowers.
Requirements:
Minimum down payment of 3.5%
Minimum credit score of 680
Must be a primary residence
Home must meet FHA standards (livable condition)
If the home require rehab, you’ll need an FHA 203K Loan
VA Loans
VA loans are available to veterans, active duty and their spouses. These loans don’t require private mortgage insurance (PMI) or, in some cases, a down payment.
If the property needs rehab, VA Loans will not qualify. You cannot use the potential rental income from a property to qualify for a VA loan.
Private mortgage insurance (PMI)
If you’re down payment is less than 20%, you are REQUIRED to purchase mortgage insurance. Private mortgage insurance (PMI) is a bank’s way of protecting themselves in case a buyer is unable to continue paying their mortgage. PMI costs are automatically added to your monthly mortgage payment.
PMI premiums are calculated based on the loan total and can range anywhere from a .5% to 2% additional cost on your mortgage.
Putting 20% down avoids these fees altogether, and is highly recommended. It’s always good to have equity in your home.
Closing costs
Make sure to free-up funds necessary to cover your closing costs in addition to your down payment. Closing costs vary, but are typically at least 3% of the purchase price and often include attorney fees, title, insurance, upfront PMI, taxes, home insurance, and recording fees.
Looking for extra money to cover you closing costs? Cash out your 401k, liquidate stocks, and sell those beanie babies. You can also ask your family for a gift.
If you need help finding a lender or would like to know more about the different types of loan programs available, feel free to check out my preferred vendors page to get in contact with someone I know and trust!