Now that you’ve determined how much home you can afford, it’s time to consider which of main loan types is right for you. Each loan type has pros and cons, along with variable credit score requirements.
Conventional loans - This standard loan is the most common loan type. They are also the most flexible, while also being the least restrictive. Depending on your credit score and income, you can put as little as 3% down, however most lenders will require 10%. Private Mortgage Insurance is not required when putting down 20% or more. Generally, a credit score of 620 or better is required.
FHA loans - A great option for those with lower credit scores, an FHA loan can be obtained with 580 credit score and as little as 3.5% down. However, this will require PMI for the life of the loan (typically rolled into the payment), and an Upfront Funding Fee of 2.25%. Because of the low down payment and credit score requirements, this is a great option for first time home buyers.
VA loans - Created exclusively for those who served, these loans are backed by the Department of Veteran Affairs and require no down payment and no PMI. Funding fee is required, usually rolled in to the payment. Lenders may have additional requirements.
USDA loans - This loan sounds like a farm loan but in reality is anything but! Designed to to make homeownership a reality for low to moderate income families, these loans are available for people living in “rural” areas, which, according to the USDA, includes 97% of the territory in the US. If you’re not directly downtown in a big city, this loan could be for you. Requirements include:
- Verified income eligibility determined by state
- Permanent occupation of the dwelling
- US Citizenship
- Demonstrate willingnes to meet the loan obligation
- Credit score of 640
This loan type also requires an Upfront Funding Fee (1%) and annual fee of .35% rolled into your payment.
Jumbo - If you’re moving up to a bigger home or shopping a high cost area, this may be the loan for you. This type of loan can also be used to finance vacation and investment properties. Consider a Jumbo loan for properties up to $2 million! Minimum 660 credit score required; 15- and 30year loan terms available.
Any of the non-conventional loans can help you save thousands on your overall costs, so take a look before moving forward with a conventional loan.
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A quick guide to buying a home
Buying a house is a big decision, but with some basic steps, you can make the process easier. Here’s a simple guide to help you navigate buying a house:
Determine your budget: Before you start looking at houses, figure out how much you can afford. Consider your income, expenses, and any debts you have.
Get pre-approved for a mortgage: This will give you a better idea of what you can afford and make you a more attractive buyer to sellers.
Find a real estate agent: A good agent can help you find houses that meet your criteria, negotiate with sellers, and guide you through the buying process.
Start house hunting: Look for houses that fit your budget and meet your needs in terms of size, location, and amenities.
Make an offer: Once you find a house you like, work with your agent to make an offer. Consider factors like the condition of the house, the current real estate market, and the seller’s asking price.
Get a home inspection: Before closing the deal, hire a professional to inspect the house for any issues that could be expensive to fix.
Finalize the mortgage: Work with your lender to finalize your mortgage and ensure all necessary paperwork is in order.
Close the deal: Sign the final paperwork, pay any closing costs, and take possession of your new home.
Move in: Once you’ve closed the deal, it’s time to move in and start enjoying your new home!
Remember, buying a house can be a complex process, so don’t hesitate to ask questions and seek guidance from professionals along the way.
Interested in buying or selling a home? Click here to book a 30-minute meeting to get started!
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Ed Justen -DRE: 02221512 - Affiliated with Keller Williams.
All advice and information given on this blog is sourced from publicly available websites and common knowledge. Got questions? Click here to book 30-minute meeting with me.