Many people are excited to begin their search for a new home. They start by searching online, investigating neighborhoods, and talking with their Realtor®. As your real estate agent one of the top questions on my mind is how you are going to pay for the house? Most homeowners typically look into getting a mortgage. Knowing the type of home loan you are getting and your budget is important. I often get questions about the type of home loan a buyer should use or how much the monthly payment is going to be on a particular home.
My truthful answer to these questions is: I don’t know. The answers to these questions depend on each individuals’ financial situation and the types of home loan programs available to the buyer. I will point the buyers to their mortgage specialist for these answers. I can, however, share some basics about some of the popular loan programs out there.
*Please keep in mind that rates and requirements can change. Talk with your mortgage specialist to find the most up to date requirements.
Conventional: A type of home loan used often by buyers, conventional loans allow people to obtain a loan with a smaller down payment. However, with a down payment of less than twenty percent, you will have to pay PMI or private mortgage insurance. The credit score qualifications are stricter than other home loan types and you have to have a lower debt to income ratio. (A debt to income ratio takes all your debts you incur in a month and divides it by your monthly income.) You can get a conventional mortgage for different lengths like a 30, 15, or 10 years. Fixed rate means that your interest rate remains the same throughout the length of your home loan. A variable rate means that it will change based on the market.
FHA Loans: A government backed loan, an FHA loan requirement requires a buyer to have a FICO score of at least 580 to have a down payment of 3.5% of the selling price to acquire the loan. A FICO score of 500-579 requires a 10% down payment. Buyers must get private mortgage insurance and their debt to income ratio has to be less than 43% for this home loan.
USDA Loans: Referred to as rural development loans, these home loans have income level limits based on the number of people in a household and are only available in certain areas. If you meet the income and area requirements, you can acquire a home loan with no down payment.
VA Loan: Specifically for buyers who are part of the armed forces or national guard, VA loans offer no down payment or private mortgage insurance. Because the home loan is processed through private lenders, there is not a fixed credit score requirement and can depend on the lender.
As you can see, there are options out there, but not every mortgage lender provides all the options. Remember, it’s ok to shop around to different mortgage lenders to find a home loan that works best for you.
Ready to start your home search? Check out the blogs below.
