What Type of Home Loan is Best for Me? Part 1:
Before you are ready to make an offer on a home, you need to have your financing in order. Your agent will refer you to a lender who is usually part of her or his team. Your lender will help you get pre-qualified for your loan and will recommend the right type of loan based on your circumstances. Furthermore, your lender will make the entire loan process smooth by guiding you through the paperwork maze.
This information report was written to help you understand the basic differences between the types of available loans. This should help you determine the best type of loan for your circumstances. Talk to your real estate agent! She or he will explain any questions you have, including how the process works. Most importantly, your agent will refer you to a favorite lender who will pre-qualify you.
FHA Loans
FHA Loans are insured by the Federal Housing Authority and require a small down payment, typically in the 2.5 to 5 percent range. FHA loans are very popular with first time homebuyers who do not have a lot of cash to use as a down payment. Most FHA buyers are in the $150,000 purchase range.
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FHA loans have several advantages and disadvantages. They require a small down payment and usually allow for higher debt-income ratios (it’s easier to qualify). Also, FHA loans are assumable (you can assume someone else’s FHA loan and vice versa). However, you must pay dual insurance on FHA loans. Since FHA loans are considered higher risk, you have to first pay an up-front MIP (mortgage insurance premium) one-time fee in the case of loan default. Also, a second MIP is factored into your monthly payments. Finally, since FHA loans are considered a higher risk, the interest rates are usually higher than conventional loans.
VA Loans
VA Loans are guaranteed by the Veteran’s Administration.
You must be in the military, or a veteran, to qualify. The largest benefit
of VA loans is you don’t need a down payment, and very little
cash to move in. On the downside, VA loans require a funding fee that
is typically “rolled into” the loan. This means your mortgage
can be substantially higher than the value of your home. If you plan
to live in the home for a short period of time, you run the risk of
losing money when you sell. In this scenario your mortgage obligation
could be higher than the market value of your home. Furthermore, VA
lenders typically require very tough inspections, which can bog down
the home buying process....What
Type of Home Loan is Best for Me?, Part 2
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