Not all home loans are the same. Knowing what kind of loan is most appropriate for your situation prepares you for talking to lenders and getting the best deal.
Unconventional Loans
Unconventional loans are backed by the government, allowing the ability to give out more loans to people that may otherwise not be able to afford. However, with some discipline, using an unconventional loan can get you an extremely low down payment and other great savings. But you have been warned–this route may have more risk if you are not financially responsible.
- FHA Loan – Federal Housing Administration (FHA) loans gives you the ability to go as low as 3.5% down on a property, as long as you are living in that property. Additionally, you may be qualified for a 30-year-fixed-loan while still having an extremely competitive interest rate. The down side is that you are pretty heavily leveraged and you may end up paying a ton of interest. Moreover, you have to consider the mortgage insurance premium (MIP) you are paying monthly in addition to your mortgage payments for the entirety of your loan. With other loans where you have private mortgage insurance (PMI), you will eventually get to a point where you no longer have to pay this insurance fee. All in all, as long as you can make the monthly payments, FHA loans are an awesome option as long as you don’t overspend. If you can afford this mortgage, you will be receiving principal paydown every month, money that’s being locked away into that property that you can ultimately take out when you refinance or sell the property. On top of that, you are getting appreciation on the entirety of the building.
- VA Loan – VA loans are specifically for people who have served in the military. This is probably the best case scenario because they give you the ability to pay zero down-payment. This is a great advantage if you’re buying a duplex or four-plex and you want to live in a portion. With literally no money down you can be making money, while having a free place to live! VA loans have no mortgage insurance.
- USDA (RHS) Loan – This type of loan is mainly targeted toward people in rural areas, but it comes with many catches to the loan. You can get into a home with almost nothing down, but you would still be responsible for mortgage insurance and prepayment penalties.
Conventional Loans
Conventional loans are backed by a bank, so we can just consider this a bank loan. However within the conventional loan niche, there are confirming loans and nonconforming loans. Nonconforming loans are like jumbo loans for bigger purchases and they don’t conform to the requirements made by Fannie Mae and Freddie Mac. Conforming loans tend to give you better interest rates and better terms with the option to put in a lower down payment.
These types of loans give you the ability to go as low as 5% down when purchasing a home. However, you do need to be aware of those PMI fees. Conventional loans also tend to have extremely competitive interest rates.
For more information about the different kinds of loans, consider Protect Mortgage. They offer several lending products to cover your unique home loan needs. They take great pride in serving veteran customers with our VA loan program and offer exceptional service with their USDA, Conventional, FHA, and Jumbo loan options.
