There are many different types of financing available to buyers. Ranging from all cash purchases to zero down programs, the type of financing that works best for you will depend on your unique situation.
Conventional Loan
A conventional loans is any loan that is not from or guaranteed by the government. A conventional mortgage is granted based on the borrower’s credit history, income, and down payment.
FHA Loan
FHA loans are available to all types of borrowers, not just first-time buyers. The government insures the lender against losses that might result from borrower default. Advantage: This program allows you to make a down payment as low as 3.5% of the purchase price. Disadvantage: You’ll have to pay for mortgage insurance, which will increase the size of your monthly payments.
FHA 203K Rehab Loan
If your goal is to buy a “fixer” and make it your own, a rehab loan may be for you. A FHA 203k loan allows you to finance both the house and any needed/wanted repairs. Because the lender verifies and tracks the repairs they are able to approve a loan on a home that otherwise would not qualify for financing. All repairs must be done by a professional, so this still does not allow you to DIY your way to your dream home.
VA Loan
VA loans are for military service members and their families. Similar to the FHA program, these types of mortgages are guaranteed by the federal government. This means the VA will reimburse the lender for any losses that may result from borrower default. The primary advantage of this program (and it’s a big one) is that borrowers can receive 100% financing for the purchase of a home. That means no down payment whatsoever.
USDA Loan
USDA loans are through The United States Department of Agriculture and offer a loan program for rural borrowers who meet certain income requirements. The program is managed by the Rural Housing Service (RHS), which is part of the Department of Agriculture. This type of mortgage loan is offered to “rural residents who have a steady, low or modest income, and yet are unable to obtain adequate housing through conventional financing.” Income must be no higher than 115% of the adjusted area median income.
Hard Money Loan
Hard money loans are short-term loans provided by an individual or a company instead of a bank. These types of loans are typically used for real estate transactions and are popular for investors wanting to flip a home. Though there are higher costs to these loans, due to higher risk for the lender, the tradeoff is that the borrower can have access to funds quickly
Cash Purchase
A cash purchase is just as it sounds – buying a home with no financing. A cash offer is appealing to a seller due to less risk, fewer contingencies, and often a quick closing. Since there are many components to an offer, having cash does not mean your offer will automatically win in a multiple-offer situation.
