Ever wonder which home loan is right for you? As a prospective home buyer, it may seem obvious that you should research the neighborhoods you want to live in. However, you should also research the types of financing available to you. Deciding which type of mortgage best suits your needs, and if you can use down payment assistance programs, will help direct you to the type of home you can afford.
When thinking about financing a home, there are 3 important factors to consider:
#1 Programs
#2 Down Payment Assistance
#3 Monthly Payment
#1. Programs
There are several loan programs that exist, and many variations of each.
The first we’ll discuss is an FHA Loan. This is backed by the Federal Housing Administration. Borrowers with smaller down payments and lower credit scores are great candidates for this type of loan. Many first-time home buyers who can’t qualify for a conventional loan use an FHA loan.
Another excellent loan option is a Conventional Loan. These loans are a good match for borrowers who have a strong credit history, stable employment history, minimal debt, and enough funds to put down at least 3%. Unlike government-backed loans, you can use this loan to finance nearly any type of property, including primary residences, vacation homes, or investment properties.
Moving right along to another fantastic loan option: a VA Loan. This loan is backed by the Veteran’s Administration and is meant for active-duty military members, reservists, and veterans. These loans don’t require a down payment and don’t have a minimum credit score requirement (lenders can make that determination case-by-case).
Last, but definitely not least, is a USDA Loan. This loan program is a United States Department of Agriculture loan. It is another great zero down loan program for people looking to move into a home in more rural areas.
Two things to consider for a USDA loan are:
- Rural areas only, which means the property has to be in a certain location in order to qualify.
- AND income caps, which mean you have to make under a certain amount in order qualify.
#2. Down Payment Assistance
Down payment assistance (DPA) helps home buyers with grants or low-interest loans, reducing the amount they need to save for a down payment. In addition, you can pair a DPA with several loan options.
Requirements to qualify for down payment assistance vary by state, but here are the typical ones:
- First-time home buyers only (or those that haven’t owned a home in the last three years)
- Buyers must have low to moderate income
- The home will be a primary residence
- The home is within local purchase price limits
- The DPA is used in conjunction with an approved mortgage program
- You work with an approved mortgage lender
#3. Monthly Payments
There are several factors you should be aware of that make up your monthly loan payment on a home:
Principal and Interest – This amount goes to pay both the amount that you owe the bank, as well as the cost to borrow it.
Taxes – This cost will vary property to property depending on how the county determined the cost for the specific parcel.
Home Owners Insurance – Every property requires this. It protects you and the lender if something were to happen to your property.
Mortgage Insurance – Mortgage Insurance is a lender’s insurance policy in case of default. Typically, every loan will require mortgage insurance in some form unless you have 20% equity. Each loan program has a different name and cost for this. There are many options depending on your loan program, so it is best to go over mortgage insurance with your lender specifically.
Home Owner Association Dues – This is the only item on this list that is not directly a part of your mortgage payment. If your property has an HOA, you will pay directly to the HOA and it will be a separate payment from your monthly bill.
We hope that you now know a little more about financing a home and aren’t left to wonder which home loan is right for you. Your next step is to chat with a lender! Ready to get qualified today and start your home search? Contact us at 253-357-HOME or email hello@theoryre.com
