Buying a home is a major accomplishment. However, it is easy to get overwhelmed by all the choices for mortgages. Each choice has its pluses and minuses. Some have the lowest interest rate, others cost the least upfront. Some make sense for your credit score while others have certain income requirements. You must familiarize yourself with your options so that you choose the best one for you.
The most popular option is the conventional loan. It is otherwise known as a conforming loan because it conforms to the standards set by Fannie and Freddie. Most banks, credit unions, and mortgage companies offer it. Conventional loans have really good rates, many downpayment choices, and flexible terms. If you make a 20% downpayment, the bank does not require mortgage insurance. This is a big advantage over FHA. It can be used for your primary or secondary residency or even an investment property. It’s very customizable with many loan lengths and adjustable rates.
FHA mortgages are very popular. This is especially true with younger home buyers, where 40% take part in FHA. They have an extremely small downpayment requirement. Credit score and income requirements are lenient as well. However, they do require mortgage insurance, making them costly.
Those with an eligible military service history have the option of taking VA loans. These are very generous mortgages by the US Department of Veteran’s Affairs. It’s 100% zero-down. In most cases, this is unbeatable, whether you’re looking to buy a house to live in or an investment property.
USDA mortgages are only available in special areas. They are also known as rural development loans or single-family housing guaranteed. They have a lenient credit score and income requirements, although they do have income limits. The program offers zero downpayment loans to average income applicants.
A 203k rehab loan can be very useful to have. Many houses for sale are in a state of disarray. This program allows you to buy it and borrow more for rehab. “Fixer-uppers” typically offer a lot of monetary gain for those willing to do the work. The program offers an additional $35,000 for repairs.
Adjustable rates mortgages are great for those who don’t plan on holding their home that long. The rates are very low to start. You save thousands in interest payments over the first few years of the loan. You can sell the house or refinance before the first interest rate adjustment.
Many mortgage options can be confusing. Study them and choose the one that is best for your situation.