It is not the most feasible option for homeowners to pay for a house in full when buying a new property. These costs are why most of the population prefers to take on a loan to afford their dream home. There are a variety of loan options available by different money lending agencies. These institutions offer different types of loans to people looking to purchase their home.
You may not know that there are five common types of mortgage loans in America. Each has their own sets of requirements and interest rates or collateral requirements. Here is a quick guide on the five mortgage loans US citizens can take on to tackle the real estate market:
1. Conventional Type Loans
These loans are best for those with a stable and robust credit score history, employment background, minimal debt, and enough funds to give a down payment. Since these are typically offered by banks and not by the government, you can use such loans to purchase all kinds of properties. This way, you can use a loan to buy a home, an investment property, or a vacation home.
Conventional loans are conforming loans, as they adhere to the loan limits set by Fannie Mae and Freddie Mac. These two are the largest agencies that buy most of the mortgages in the United States. A conforming loan in 2020 is around $510,400 but can go to approximately $765,600 in higher-cost areas.
2. Jumbo Loans
These loans are large loans that surpass the limits set by the two conforming loan agencies. Any loan that passes the minimum number of a conventional loan is considered a jumbo loan. Jumbo loans are reserved for those with the best credit scores, practically zero debt, and enough savings to pay off the loan in case of any issues.
3. Federal Housing Administration Loans
For those who have lower credit scores due to unforeseen circumstances, the government provides FHA loans that can be of assistance to first-time homebuyers. When taking on these loans, the lender will base the required down payment on one's creditworthiness. Keep in mind when purchasing a condominium with an FHA Loan the entire development has to be an approved FHA development.
4. Veteran's Administration Loans
For those who are active duty, reservists, or veterans of the US military, they can take loans from the federal government to purchase a home. Credit scores vary per lender, and the loan can only be used for a primary residence. Military members also enjoy no down payment and no private mortgage insurance as a bonus.
5. United States Department of Agriculture Loans
USDA loans are backed by the government to promote the development of rural areas of the United States. They are given to people with lower-end credit scores, but their choices of rural areas to reside in are limited. A borrower must meet certain income limits, but the government waives down payment as a bonus to choosing life in a smaller and quieter town.
These different loans are always highly dependent on a credit score. The higher your credit score is, the more options you have to take on loans. By maintaining your creditworthiness, buying your dream home can be easier to do. Discuss with your local mortgage lender to see what your options are.
Lakeway Lending is the best mortgage broker in Austin, Texas, who can help you find the right home for you. With services in mortgage loans, property evaluations, and other real estate purchasing areas, you won't find better loan procedures anywhere else. Get in touch with us today to be one step closer to your dream home.