Once you nail down that you are ready to be a homeowner and have chosen the right lender, it is time to decide the type of loan product that is right for you.
There are five key types of loans products that you can apply for:
Conventional – These loans are under the conforming loan limit of $424,100 set by the Federal Housing Finance Agency. These loans are not guaranteed by government agencies, but also allow for the greatest purchasing power on the home market because the borrower may be considered a lower risk. Because of this, the requirements for getting approved for these loans can be higher than other options.
Jumbo – A jumbo loan exceeds the conforming loan limit of $424,100 (this makes them “non-conforming). (Speak to an advisor about this to make sure this is the case in your area.) Generally speaking, interest rates on these loans may be higher and you will need to have a high down payment and cash reserves.
FHA – These loans are insured by the Federal Housing Administration (FHA). These loans are intended to help home buyers who have low down payments, don’t have high cash flow, low credit scores, etc. A first-time buyer may be able to take advantage of these types of loans. Those who have these loans will need to go through specific appraisal procedures and likely have to pay for mortgage insurance premiums.
VA – These loans are insured by the U.S. Department of Veteran Affairs. Veterans, active duty and surviving spouses are allowed to apply for these loans and the government guarantees them. There is no mortgage insurance and the funding fee may even be financed.
USDA – (Applies to fixed rate mortgages only) – These are government-insured loans for rural property outside of major cities. There is no down payment required for these loans.
As you can see, there are many options for you as a homebuyer, which is a good thing since you have decided now is the right time! The right time to buy a home can happen for variety of reasons and your goals are unique so make sure you know that there are loan products available for your loan scenario. Contact us if you have any questions!