05 Feb What are the different types of home financing?
What are the different types of home financing?
When buying a home one of the first decisions to make is getting pre-approved and deciding on what type is financing best suits my needs. So, what are the different types of home financing!
Here is a review of the four most common methods of financing for a home purchase.
A VA loan is a $0-down mortgage option issued by private lenders and partially backed, or guaranteed, by the Department of Veterans Affairs (VA). Eligible borrowers can use a VA loan to purchase a property as their primary residence or refinance an existing mortgage. What is also great about these loans are that they do not require mortgage insurance. These loans are for veterans and active duty of the United States Military as a benefit for their service.
A conventional loan is a type of mortgage loan that is not insured or guaranteed by the government. Instead, the loan is backed by private lenders, and its insurance is usually paid by the borrower. A conventional loan follows lending rules set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These loans require anywhere from 3% and up for a down payment. 3% is for 1st time home buyers, and 5% is needed if not considered a 1st time home buyer. If you do put 20% down, you will not have to carry Private Mortgage Insurance (PMI).
A (FHA) loan is a mortgage that is insured by the Federal Housing Administration (FHA) and issued by an FHA-approved lender. FHA loans are designed for low-to-moderate-income borrowers; they allow a lower minimum down payment of 3.5% and have a wider range of eligibility due to a higher allowable debt to income ratio verses a conventional loan.
A USDA home loans are issued through private lenders and are guaranteed by the United States Department of Agriculture (USDA) A USDA loan is a
mortgage that offers considerable benefits for those wishing to purchase a home in an eligible rural area (which is found in many second tier Twin Cities suburbs). The benefits are you can use 100% financing of the sales price. The caveats can be you have tight income restrictions, low debt to income ratios, and the home must be in approved USDA area to qualify for this program.
If you have any questions on what are the types of home financing and what is best for you…just call me. I am always available to answer your questions.
Look for more articles and videos in the future on different aspects of Minnesota real estate and our state of Minnesota.
Real estate is a wonderful investment!