Homeownership can already be considered a societal goal—one that most people begin to consider when they have financial stability and job security. However, even financially literate individuals can have difficulties understanding the difference between mortgage types and eligibility to apply for one.
But if you’re not familiar with what these are, don’t worry because you’ve come to the right place. This is a guide aimed to help first-time home buyers understand the different kinds of home loans that they can consider for their purchase. Below are five common mortgages that you can look into further:
If you have an excellent credit score and you have enough funds to put down on your house, you can go with a conventional mortgage. This is because the conventional mortgages offered by traditional financial institutions often come with stringent guidelines and requirements, which can be difficult to provide.
That’s why those with poor credit scores and history tend to stay away from conventional mortgages because it will be harder for them to get approved for their application. But since you have the history and credit score to back you up, you can take advantage of conventional mortgages with their low down payments.
If you have poor credit standing but still want to buy a house, getting a mortgage backed by the Federal Housing Administration (FHA) may be your best bet. Of course, your application still has to be approved by your chosen lender, but once you pass through the screening, you’ll be able to enjoy a low down payment.
Additionally, you’ll have more flexible qualification guidelines and requirements because you’re not borrowing money from a traditional lending institution. The flexibility in itself is a benefit, so consider applying for an FHA loan if you have a lower credit score than what conventional loans require.
If you’re interested in living in a rural area and you want a 0% down payment, you might benefit greatly from getting a mortgage that’s guaranteed by the U.S. Department of Agriculture (USDA). This can also be a good option if you’re a low- to moderate-income buyer and want to buy your own house.
Much like other financing options, you’ll still have to apply to get a USDA mortgage. But once you get approved, you’ll be able to buy a single-family or modular home, a planned unit development (PUD) home, or even a condominium unit that’s considered eligible by the USDA.
If you’re in the military, naval, or air force and if you’re a veteran looking for assistance in buying a house, you can apply for a Veterans Affairs (VA) mortgage. Because the VA will back up your loan application, you won’t have to pay any down payment or mortgage insurance, unlike other borrowers when they get approved.
However, you should note that you’ll still need a good credit standing, which is usually 620 at the minimum. It will be harder for you to get approved if you have a poor credit score, so you might want to work on that before you try applying for the loan program. But all in all, it’s a great benefit that you wouldn’t want to miss out on.
If you want to buy a house that’s bigger and more expensive than normal, you might need a jumbo loan for that. This is because the amount you’re planning to borrow from the bank or a credible lender is higher than the borrowing limit for conventional loans set by the federal government.
Since you’re planning to borrow a substantial amount of money, you’ll have to provide a minimum of 10% for the down payment, or 20% if you don’t want to spend on mortgage insurance. Plus, you should note that 700 is the minimum credit score to get approved for a jumbo loan, which is much higher than what’s required for conventional loans.
So there you have it, five kinds of mortgages that you can consider when financing your first home. All this money talk can be a lot to take in at once, but it pays to be familiar with your options because that’s the only way you can make an informed decision regarding your future.
It might cause a massive headache at the beginning, but trust in the process; soon enough, you’ll be happy living in your dream home. And until that time comes, don’t be afraid to ask for help from financial consultants or even your friends and family for advice on what you should do during the homebuying process. Their valuable contribution may help you make decisions.