Understanding the home loan mazeReal Estate Thursday, May 10th, 2012
There are many different types of home loans that are available to you as a buyer. In fact, banks and other lending institutions have dozens of different loan programs that you can choose from when you are purchasing a property or refinancing one. It is not possible to cover all of them in this article, but below are some of the most common loans available today.
The Federal Housing Administration (FHA) loan has become one of the most popular loans today because it allows the buyer to put as little as 3.5 percent as a downpayment. Therefore, it is possible to buy a house when you do not have a lot of actual cash available. Many people think they have to have a large downpayment to buy a home. But this is not the case with the FHA loan. However, if you have enough money, you can put more down as a downpayment and consider a conventional loan.
Conventional loans are also very common and popular today, and are widely used in the lending world. These loans will require a larger downpayment than an FHA loan but keep in mind, the more you put down, the lower your loan balance and your monthly payment will be. Conventional and FHA loans are probably two of the most common loans that are being used today. However, there are other types of loans like the VA loan (Veterans Affairs).
VA loans are not as common as FHA and conventional loans, but they are used by many buyers who qualify as military veterans. With a VA loan, a qualified buyer can take advantage of some special benefits offered to them by the government. There are some requirements that the seller must cooperate with when accepting an offer from a VA buyer, but it is a good loan and a great benefit for our veterans. A negative to the VA loan is that a lot of sellers do not want to cooperate due to the requirements that are part of the loan. As a result, the seller will try to find a conventional or FHA buyer first before considering a VA buyer. It is simply a reality of the real estate world.
Typically, what sellers and listing agents look for in a buyer’s financing is prioritized as first, a cash offer; second would be a conventional loan with as large of a downpayment as possible; third would be an FHA loan and last would be other types of loans like VA loans.
There are many different kinds of features in each of the loan categories. For example, there are fixed loan rates and adjustable loan rates. There are different lengths of time that a loan can be extended. The most common period is thirty years. But there are also shorter time periods like 15 years.
Another tidbit to keep in mind as a general rule is that you as a buyer will be required to pay for monthly mortgage insurance (PMI) if you put less than 20 percent down. This is an insurance that protects the lender if a buyer defaults on the loan and is charged monthly as part of your mortgage payment. If you are able to put 20 percent or more down, you should not be charged PMI. Five years ago it was very easy for almost anyone to get a home loan. But today, lenders are stricter with their lending criteria and they look more closely at a buyer’s credit score, income, debt ratio and assets when qualifying them. Lenders are still lending money. So if you want to buy a home or an income property do not hesitate to call your bank or credit union and get prequalified. It is a very quick and simple process and can even be done over the phone.
As I have shared in previous articles, real estate has always been one of the best investments historically throughout the world. So you owe it to yourself to look at buying a home.
Trent St. Louis is a licensed Real Estate Agent and a member of the National, California and San Diego Association of Realtors. You can reach Trent at SpecialAgentTrent@gmail.com or at his office in Hillcrest, 619-300-1621. The Metropolitan Group (CADRE#01273643).
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