Buying a home is exciting but the financing side of things can feel overwhelming.
Before there were only three mortgage loan types a home buyer can choose from. Buyers could get a fixed-rate conventional mortgage, an FHA loan, or a VA loan. But now, loan types have evolved into a dizzying array of options.
Here are the Six Main Mortgage Types.
1. Conventional Mortgages
A conventional loan is a loan that is not backed by the federal government. Borrowers with good credit, stable employment and income histories, and the ability to make a 3% down payment can usually qualify for a conventional loan.
2. Conforming Mortgage Loans
Conforming loans are bound by maximum loan limits set by the federal government and vary by geographic area.
3. Nonconforming Mortgage Loans
These types of loans are riskier to a lender, so borrowers typically must show larger cash reserves, make a down payment of 10% to 20% (or more), and have strong credit.
4. Government-Insured Federal Housing Administration (FHA) Loans
Low-to-moderate-income buyers purchasing a house for the first time typically turn to loans insured by the FHA when they can’t qualify for a conventional loan.
5. Government-Insured Veterans Affairs (VA) Loans
The U.S. Department of Veterans Affairs (VA) guarantees home buyer loans for qualified military service members, veterans, and their spouses.
6. Government-Insured U.S. Department of Agriculture (USDA) Loans
USDA loans are best for homebuyers in eligible rural areas with lower household incomes, little money saved for a down payment, and can’t otherwise qualify for a conventional loan product.
Take it from me as a seasoned real estate professional, it will be advantageous to pursue financing before you get serious about looking at homes and making offers. You will also be taken more seriously by sellers if you have a preapproval letter in hand.
If you have further questions, click here to contact me today.