The 3 Major Types of Home Loans

Dated: 01/17/2019

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lancaster ohio homes for sale

Purchasing a home can be an overwhelming process. What neighborhood do you want to live in? What schools do you want to be close to? How much house can you actually afford? How are you going to finance such a huge purchase? All of these thoughts run through a buyer’s mind when they first decide they want to buy a home, with the biggest question being how they are going to pay for the house.

If you don’t have cash to purchase a home, then the first step would be to get a pre-approval for a home loan. Being pre-approved for a home loan before you even start searching will save you a lot of time and hassle when you actually start looking at homes. By being pre-approved by a reputable mortgage lender you will discover how much home you can actually afford, and loan options for purchasing that home. This also proves to sellers that you are serious about buying a home, and many sellers require pre-approval before you can even submit an offer to purchase.  

The three major types of home loans are a conventional loan, an FHA (Federal Housing Administration) loan and finally a USDA (United States Department of Agriculture) loan. Below are the requirements listed for each type of loan.

Conventional Loans

  • You can use a conventional loan to buy a primary residence, second home, or rental property
  • Conventional loans are available in fixed rates, adjustable rates (ARMs), and offer many loan terms usually from 10 to 30 years
    Down payments as low as 3%
  • No monthly mortgage insurance with a down payment of at least 20%
  • Lower mortgage insurance costs than FHA
  • Mortgage insurance is cancelable when home equity reaches 20%
  • Lenders may have their own internal guidelines and requirements for this type of loan and may vary between lenders.

FHA Loans

  • FICO® score at least 580 = 3.5% down payment.
  • FICO® score between 500 and 579 = 10% down payment.
  • MIP (Mortgage Insurance Premium ) is required.
  • Debt-to-Income Ratio < 43%.
  • The home must be the borrower's primary residence.
  • Borrower must have steady income and proof of employment.
  • Lenders may have their own internal guidelines and requirements for this type of loan and may vary between lenders.

USDA Loans

  • Ability to prove creditworthiness, typically with a credit score of at least 640
  • U.S. citizenship or permanent residency
  • Stable and dependable income
  • A willingness to repay the mortgage - generally 12 months of no late payments or collections
  • Adjusted household income is equal to or less than 115% of the area median income
  • Property serves as the primary residence and is located in a qualified rural area
  • USDA loans usually offer 0% down payment options
  • Lenders may have their own internal guidelines and requirements in addition to those set by the USDA's Rural Development program.

    Typically, FHA and USDA financing options are easier to qualify for than a conventional loan. USDA loans also require that the home being purchased is located in a rural area, or in a town with less than 10,000 in population.

    If you are looking to buy a home in Lancaster, Ohio, please call Rise Realty at 740-654-5552 to speak to one of our friendly, experienced and knowledgeable agents. We would be happy to answer any questions you may have about the home buying process, and put you in contact with a reliable, preferred lender.

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