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The home-buying process is complex, especially when prospective buyers lack sufficient funds or budget to make a purchase. To alleviate this financial concern, securing a home loan can be a beneficial option.
Home loans come in various types to meet the diverse needs and preferences of homebuyers, including those who are first-time buyers and real estate investors.
Intending to buy a house but are uncertain about what type of home loan you should secure? If you know how to get a home loan, now is the time to explore five noteworthy types of home loans below, so you can make an informed choice!
- Conventional Loans
One of the most considerable types of home loans is traditional mortgage loans. The federal government doesn’t insure or guarantee these loans. A homebuyer with a higher credit score and a down payment of at least 3% to 20% can secure a conventional loan. According to a blog post published on AmeriSave, getting your credit mortgage-ready is essential.
Conventional loans can be either conforming (meeting the guidelines set by Fannie Mae and Freddie Mac) or non-conforming (not meeting those standards). The interest rates usually offered are competitive, making it an excellent choice for borrowers with strong credit histories.
- FHA Loans
Backed by the Federal Housing Administration (FHA), these loans can help lower-income and first-time homebuyers achieve their homeownership goals. They can make smaller down payments—often as low as 3.5%—and have more flexible credit score requirements.
If you secure an FHA loan, you may not qualify for a conventional loan due to credit issues or a lack of savings and funds. Just remember to confirm the terms and conditions of the lenders so you will feel confident securing this type of home loan.
- VA Loans
VA loans are designed explicitly for eligible veterans, active-duty service members, and certain members of the National Guard and Reserves. These loans are backed by the U.S. Department of Veterans Affairs. The best part?
The borrower doesn’t need to make a down payment, and private mortgage insurance (PMI) is not required. If you are a military veteran and are going to secure this type of home loan, be aware that the interest rates are competitive, so that you can gain long-term financial benefits.
- USDA Loans
Offered by the U.S. Department of Agriculture, USDA loans are an ideal choice for rural and suburban homebuyers who meet specific income requirements. The purpose of designing and offering these loans is to promote homeownership in specified rural areas. Borrowers don’t need any down payment.
Low mortgage insurance costs and interest rates, along with perks, make USDA loans an effective way to purchase property in less densely populated areas.
- Jumbo Loans
As a homebuyer, if you are looking to make real estate investments that exceed the conforming loan limits set by Fannie Mae and Freddie Mac, a jumbo loan is what you should obtain. These loans are not eligible for purchase by government-sponsored enterprises.
They typically require higher credit scores, larger down payments (often 20% or more), and stricter income documentation. Securing jumbo loans from a reputable lender can be advantageous for buyers seeking luxury properties or homes in high-cost markets.
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