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From FHA to VA: An Overview of Common Mortgage Types
Once you decide to buy a home, you'll need to apply for a mortgage. It's usually best to do this early in the home-buying process before you start looking at Edina homes for sale. Then, you'll have a better idea of how much you can spend, your interest rate, and what banks you're most interested in working with.
At this stage, our real estate agents are often asked, "What kind of mortgage should I apply for?" The answer depends on a number of factors, including your income, credit score, history of home ownership, and veteran status. Take a look at the most common types of mortgages to get a better idea of which one suits you best.
- Conventional Mortgages
A conventional mortgage is the simplest type of mortgage. The bank lends you the agreed-upon amount, and no other entities are involved, such as government bodies or independent organizations. Conventional mortgages tend to offer a good rate; almost every mortgage-lending bank offers them; and you can choose between several different terms—although 15-year and 30-year are the most common.
Conventional mortgages do come with some limitations. You need to have a fairly good credit score to qualify. Plus, most banks require a fairly low debt-to-income ratio for a conventional mortgage. So, you may not qualify if you're carrying a lot of other debt. - FHA Mortgages
An FHA mortgage is one type of government-backed loan. More specifically, these loans are backed by the Federal Housing Administration. If you were to default on the mortgage, the FHA would pay the bank on your behalf. This agreement makes it more secure or less risky for the bank to lend to you. As such, FHA loans come with lower credit score requirements than conventional mortgages. The down payment requirements tend to be lower, too.
FHA loans usually have a lower "ceiling" than conventional loans. In other words, the bank may approve you to borrow a smaller amount. The home must also meet more stringent safety standards to qualify for this type of financing, which is sometimes difficult with older homes that have not been extensively updated. - VA Mortgages
If you're an active duty military member, a veteran, or a surviving spouse, you're likely eligible for a VA loan. These loans are guaranteed by the U.S. Department of Veterans Affairs in a similar way as FHA loans are guaranteed by the Federal Housing Administration.
If you qualify for a VA loan, it is often the best kind of mortgage to apply for. There's no required down payment, although you can certainly make one. Credit score requirements are lower than for other loan types. However, there is a funding fee due at closing. Your bank can tell you how much this fee will be so you know what to expect. - USDA Mortgages
If you're buying a home in a rural area, then a USDA loan may be the way to go. USDA mortgages are guaranteed by the U.S. Department of Agriculture. They don't usually have a credit score requirement, and you won't even have to make a down payment. But again, if you can afford a down payment, it's usually advised to make one.
USDA loans are only available in certain agricultural areas. They are intended to make homeownership realistic for those with lower incomes.
Hopefully, this guide has improved your understanding of popular mortgage types. Call today if you're ready to start shopping for the perfect home. Our agents can help you find the best Glenwood homes for sale.