Bob Kutschbach, owner and broker of Carleton Realty, talks about the 4 types of home loans.
First is an FHA loan. An FHA home loan is insured by the Federal Housing Administration. The main benefit of an FHA loan is that it has easier qualifying standards than other loans. It allows for down payment assistance as either a gift from a family member or a grant from a non-profit organization. This means that it is easier to get into a home with little or no money down. An FHA loan allows for a lower credit score and higher debt, meaning that most people can purchase a larger house. The downside is that you have higher mortgage insurance over the life of a loan.
Next is the conventional loan. This is a standard loan, most loans are conventional. With this type of loan lower ratios of debt to income are required. This loan also requires a down payment contribution from the buyer. While you can’t buy as much house with this loan you will have lower closing costs and mortgage insurance. With 20% down there is no mortgage insurance at all.
Next up is a VA loan. VA loans are reserved for people with military service. Most people who have been in the military qualify. This loan has no down payment as long as the property appraises for the contract price. A VA loan has the highest ratios, you can buy a much bigger house this way. This loan has a “funding fee”, which is like closing costs and the amount varies by the length of military service. You can get multiple VA loans in your lifetime, especially if the last one was paid off meaning your full entitlement is restored.
Lastly we have the USDA loan. This loan used to be called Farmer’s Home loan and is now called the Rural Development loan. This loan is for homes outside of major metropolitan areas. The city must be pretty large to be excluded. This is a no down payment loan and allows for land to be purchased too.
Not all lenders do all types of loans, be sure to ask an experienced real estate agent which lender will work for you! If you have questions regarding home loans call us!