If you are at that point in your life that you are ready to ditch the rental and purchase a house of your own, then congratulations!
Most buyers don’t have all the cash needed to buy a home upfront in full, so it’s not unusual to need a home loan. It can sometimes get a little confusing with the number of home loans available to qualify for, especially when you’re trying to decide what makes the most sense for you and your situation. To make things a little easier, I’ve listed the more common home loans below and a bit about each one:
- Conventional: This is one of the most popular home loans when it comes to buying a house. It typically offers the best interest rates compared to other home loans. The minimum down payment is about 10% with 20% being the standard. This option is best for those with good credit, and who are upgrading into their next home.
- FHA: The FHA loan offers affordable home ownership with a smaller down payment requirement than other home loans and has easier credit requirements than most. The minimum down payment is 3.5%. The FHA home loan is great for first time home buyers, however is available to anyone. It’s also accommodating to those with less than perfect credit. Since an FHA loan is easier to qualify for, the interest rates are not as attractive as the conventional loan.
- VA Loan: The VA loan is a mortgage loan issued by approved lenders and guaranteed by the U.S. Department of Veterans Affairs. Offered to veterans exclusively, this home loan eliminates the down payment without any risk of PMI (Private Mortgage Insurance). This type of loan is designed for properties considered to be of ‘move-in ready” condition, as well as owner-occupied.
- Adjustable Rate Mortgage (ARM): The best part about the ARM home loan is that these rates typically start out lower than any of the other loans out there. However, rates will fluctuate with the market after a certain amount of time- usually either one, two, or five years- So, it’s certainly possible that your rates could go up after that agreed time. You’ll usually be looking at a standard 20% down payment with a minimum of 10%.
- USDA: The USDA home loan was created in order to help with the promotion of purchasing rural lands. It’s best for anyone who is interested in living out “in the country” or in a rural setting, however their definition of rural is probably not as extreme as you were thinking. This loan can only be used in designated areas and towns, but luckily there is no down payment required for this one either.