Searching for a home is a fun, albeit stressful, adventure. To purchase your dream home, you need to complete another search first. One that’s often just as stressful but rarely fun. Choosing a mortgage loan can be confusing at any time, especially when it’s your first time. It’s important to commit to a mortgage lender who can provide you with the farmers bank loans that work best for you. Mortgage lenders do not always offer the same types of loans. Some offer a variety while others specialize. Knowing this and what types of loans you might qualify for will assist in your search for the right lender. So, where do you start? Have a working knowledge of loan types. The list below will introduce you to a few of the common mortgage loans and their basic qualifications. Talk with your mortgage lender about each loan to determine which one works best for your situation.
- Conventional Loans
- Not insured by the government
- Requires a higher income
- Requires a higher credit score
- A down payment of at least 5% of the purchase price
- Down payments under 20% require a Private Mortgage Insurance fee until you reach 20%
- Qualification is tricky
- Lower payments thanks to a larger down payment (due to the PMI) and lower interest rates
- FHA
- Government-supported
- Lower down payment
- PMI fee until 20% of home value is reached
- Closing costs are lower
- You can receive money from family as a gift if you are struggling to find the money
- USDA
- The United States Department of Agriculture is behind this loan
- It might be the best option if purchasing in a rural area
- Do not be discouraged by the rural area designation. You might be surprised at what areas qualify
- Little to no down payment
- Closing costs are typically lower
- Requires a USDA Guarantee Fee and Mortgage Insurance
- VA Loans
- This loan is guaranteed by the United States Department of Veteran Affairs
- Offered to active and retired military families
- Zero down payment
- Closing costs are typically lower
- No mortgage insurance
- Interest rates are negotiable
With all loans, it’s important to understand the advantages and disadvantages. When comparing the different types of mortgages, you will notice varying interest rates and a difference in loan length. If you choose a loan that qualifies for no down payment, talk with your lender about the possibility of providing a down payment. This may decrease your payment, allowing more cushion in your budget if emergencies arise.
Do not hold back if you have questions. Mortgage lenders are there to help you make the best choice. This decision is not something you want to make without proper research and a firm understanding. Since this is a loan, you will pay long-term, the ability to consistently make your payments and the knowledge you chose the best loan will provide you with peace of mind. And once you’ve educated yourself about loan types, you can move on to pre-approval of your loan. At that point, it’s time to search for your dream home and begin planning your future.