The Federal Housing Administration (FHA) loan is often referred to as a first-time homebuyers' loan,…
Settling into your dream house is a fascinating time in anyone’s life. However, one thing that may dampen that experience is the home loan application process.
Is it truly better to purchase real estate property through a mortgage? And are there home lending services available for first-time homebuyers? Let’s find out.
What is mortgage lending?
Say you want to purchase a house, and you do have some savings put away, but, unfortunately, even if you shell out all of your money, they still won’t be enough to pay for the home.
When you need financing for a property, it’s time to apply for a mortgage. A mortgage is basically home lending. You borrow money from a lender for a new home, and once you get approved, you start paying monthly. If you default on your payments, the lender will get your property in foreclosure. It becomes the collateral for the debt.
Types of Mortgages
There are several loan options for Americans depending on qualifications. See if you might meet the requirements for the following types of loans.
A mortgage from a private company is called a conventional loan. This type of mortgage is usually for those who have longer credit histories and more financial experience. The lending company usually prefers a FICO score of at least 680. The interest rate you get approved for is usually higher than government-backed mortgages, although this can work to your advantage. Remember that even if you get a low-interest rate, the total cost can get even more expensive if you still pay for it over a longer period.
There’s also a higher down payment required when you choose this type of loan. And when you put down less than 20% of the purchase price, you will also need to pay for private mortgage insurance.
For rural home buyers, there’s a government-backed mortgage you can also apply for. The U.S. Department of Agriculture offers one of the zero-down payment mortgages available in the country. Aside from buying your new home in a rural area, as much as possible, you must also have a FICO score of at least 640. But if you can argue that your credit history was unfairly affected by factors out of your control, your application can still be considered.
Financing for active-duty members or military veterans is also available from the U.S. Department of Veterans Affairs. VA Loans offer one of the most competitive lending opportunities dedicated to service members and their spouses. This is the second zero-down payment mortgage option aside from USDA loans. Since this kind of loan gets support from the government, you don’t need to pay for private mortgage insurance and the minimum FICO score to qualify for one is only 580.
Finally, if you don’t qualify for a USDA loan or VA loan, and your credit score is not enough for financing through a conventional loan, you can also get support from the Federal Housing Administration. FHA loans were created with first-time homebuyers in mind, although they are still one of the best options even when you are already a seasoned home buyer. With a FICO score starting at 580, you can be required to make just a 3.5% down payment for your home loan. This way, you can save the rest of your liquid funds and grow them through another investment. Below 580, if your score is at least 500, you can still buy your house with an FHA loan, provided that you pay at least 10% of the home’s purchase price upfront.
What is the best home loan?
Different borrowers have different circumstances, and we all have our personal reasons for buying houses. It can be an investment, or it can be where we want to grow old. Whatever the case, today, there is a world of options available, making it possible for you to buy a home with low-interest rates and low down payments required. Customers can even take advantage of zero-down payment options with the help of the federal government.
What is best for you might not be the best for somebody else. There’s a mortgage service for almost everyone who wants to grab the chance today.
Check out this mortgage calculator from Bank of America if you would like to get an estimate of your monthly mortgage depending on where the property will be located, the interest rate, and more.