Here are the three types of home financing options. Which is right for you?
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There are three different types of financing you can use to buy a home:
1. Conventional financing. Many people don’t know that you can use conventional financing and put down as little as 3%. With conventional financing, you’ll have a lower PMI (private mortgage insurance) rate if you put down less than 20%, but you’ll likely have a higher interest rate, so compare financing types before moving forward. It’s a bit more difficult to qualify for this type of financing, so if you have bad credit or a high debt-to-income ratio, this may not be the best option for you. However, if you have great credit and put 20% down, this is often the best financing for you.
2. FHA financing. FHA stands for Federal Housing Administration. With this loan, you can buy a home with as little as 3.5% down. This loan is easier to qualify for because you can have a lower credit score and a higher debt-to-income ratio than what you'd need for conventional financing. Typically the interest rate for FHA financing is lower than with conventional financing, but the PMI rate is often a bit higher. If you’re putting down 10% to 19%, your PMI insurance will come off the loan after 10 years.
Be sure to compare financing types before settling on one.
3. VA loan. You can only qualify for this loan if you or your spouse is a veteran. You can buy a house with this loan for as little as 0% down up to any loan amount. Little known fact: You can get up to a $2 million loan, though you still have to have the income to qualify. This is a wonderful loan, easy to qualify for, they work with lower credit scores, and they allow a much higher debt-to-income ratio.
If you have any further questions about these financing options or real estate in general, reach out via phone or email. We would love to help you.