Types of Home Loans First Time Home Buyers Need to Know
Buying a home is one of the biggest investments a person can make and it is no longer just for the rich. In fact, about 67% of U.S. adults have borrowed money to buy a home.
If you got to the point where you decided in getting one, you naturally will start thinking about mortgages. Yet, not all homeowners have mortgages, so what kind of home loan do you need?
In this post, you will discover the main types of home loans available on the market, what they are, and which ones are right for you. Let’s get into it!
Federal Housing Administration Loans
A Federal Housing Administration loan is a mortgage insured by the FHA, designed for lower-income borrowers. They are a great option for first-time buyers who may not have the credit score or down payment necessary for a conventional loan.
FHA loans also have more flexible credit and income requirements than those of conventional, and down payments can be as low as 3.5%. If you have a credit score of 580 or higher, you may be eligible for a low-down-payment loan insured by the FHA.
VA loans offer 100% financing, which means that you don’t need a down payment. They also have lower interest rates and no private mortgage insurance, which can save you hundreds of dollars each month.
These loans are available to active duty and veteran military members, as well as their surviving spouses. If you think you are eligible, it’s definitely worth investigating this option.
You can also check out these VA home loan FAQs for valuable insights, and see if this loan is the perfect one for you!
The USDA offers a loan program for rural borrowers that can help make homeownership more affordable. This loan program offers 100% financing, which can help with the upfront costs of purchasing a house.
There are also income limits and property eligibility requirements that must be met in order to be approved for the mortgage. Also, USDA loans are backed by the government and offer low-interest rates.
A conventional loan is a type of home loan that is not backed by a government entity. Instead, these are issued by private lenders, like banks, credit unions, and mortgage companies.
Because they’re not backed by the government, they have stricter eligibility requirements than government-backed loans. To qualify, you’ll generally need a credit score of at least 620. However, some lenders may require a credit score of 680 or higher.
You’ll also need to prove that you have enough income to support your home-buying expenses and cover your monthly payments.
When it comes to your down payment, most lenders will require you to put down at least 5% of the purchase price. However, you may be able to qualify for a 3% down payment if that is your first home loan.
A Guide to Different Types of Home Loans
Buying a house is a huge investment and there are several types of home loans to choose from. It is important to know which one is right for you as a first-time home buyer. Different loans have different requirements, so be certain to do your research.
Talk to a mortgage lender to learn more about the different kinds of loans available and to find the one that is right for you.
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