Where you live, your planned occupancy timelines, money to spend today versus tomorrow, and other variables will assist in differentiating the right loan from the wrong loan. Choosing wisely will set a purchaser up for financial success for years. Choosing incorrectly can cost a seller financially and personally for years.
Most purchasers are aware of the standard conventional loan however many types of obtainable loans exist: Federal Housing Authority (FHA) loans, Veterans Affairs (VA) loans, fixed rate loans, adjustable rate loans, jumbo loans, and many more. Each difference involves a minor or major item such as down payment, fees paid, and interest.
Adjustable Rate Mortgages (ARM) offer lower upfront mortgages than a fixed rate mortgage, which is obtained through purchasers also taking on more risk as the interest rate will rise and fall in keeping with market conditions as time pass. If interest rates go up, the monthly rate goes up, and vice versa. This type of loan is typically obtained by owners with a shorter term mindset or those with credit issues as this loan is sometimes easier to obtain.
Typically, conventional loans require a 20% down payment structure, however, a variety of loan programs exist for those who look to obtain ownership but cannot access 20% of equity upfront. FHA loans are the mot popular of these loans. The loans are a fixed rate with down payment requirements as low as 3.5% for first time home buyers. Given that the lender is supposedly taking on more risk as the purchaser only has limited equity committed to the loan and the property, FHA lenders mitigate this risk by requiring purchasers to obtain mortgage insurance, which will be another monthly line item expense during a portion of all of the term of the loan term, depending on the specific loan. The FHA loans are all government backed, requiring more paperwork but more financially obtainable.
Veterans Affair (or VA) loans are an ideal alternative to conventional loans for veterans who meet certain time-served requirements. Application requirements are much more lax to support those who served our country. In addition, a qualifying veteran will have no down payment requirement.
United States Department of Agriculture (USDA) loans are another form of government backed loans which are designed for properties for families living in rural areas. Like the VA loan, the government will finance as much as 100% of the home price for USDA eligible homes. These homes are identified as eligible due to their location within certain geographic outlines determined by the USDA.
Another type of financing is driven by term and higher loan costs in exchange for lenders providing a riskier loan. These bridge loans, which are also known as gap financing, is an ideal option for these in unique situations such as acquiring a new home prior to selling an existing owned residence. These loans have a variety of structures, and can even uniquely allow a property owner / prospective purchaser to combine their current and new mortgage payments into one payment. Once the property is sold, the original mortgage will be paid off and refinanced.
These options are the primary loan avenues for consideration, however in the event you have unusual circumstances such as being over 75, a widow, or anything else, our team of experts is here to point you in the right direction, allowing you to reach the home of your dreams while remaining financially responsible.