Real Estate Agent and Trainer, Robert Rico, explains the different types of loans people can apply for (depending on their specific circumstance) for putting a down payment on a home. Do you want to see more video blogs? Subscribe here!
Buying a house is far from simple, especially when it comes down to knowing what type of home loan to acquire. As a real estate agent, it is crucial to get familiar with all of the different home loan options that are available to homebuyers. It is important to understand that a myriad of decisions will need to be made when purchasing a home.
The three most common home loans: Conventional, FHA, and VA. Each loan come with its own set of requirements and regulations, each with their advantages and disadvantages.
By taking a closer look at each loan option, we are able to compare them for a thorough understanding.
These are loans that do not involve government cooperation and are not government insured. A variety of different types of banks offer conventional loan products. Some of the requirements when applying for a conventional loan include the following:
- Typically 20% down payment
- Debt to income ratio should not exceed 36%
- Strong credit score, pending the loan program
- Must have stable employment, typically 2 years of continuous employment
- PMI, Private Mortgage Insurance, required if less than 20% down payment
Federal Housing Administration (FHA) was created in response to the multiple foreclosures in 1934 during the Great Depression. FHA doesn’t make loans to borrowers, but is a government-backed loan that insures loans are made by the lenders. By insuring 100% of the loan amount, the lenders will have little financial risk when making home loans to borrowers.
FHA will only insure a limited amount depending on the location of the property. The following are some requirements when utilizing a FHA home loan:
- 3.5% down payment
- Many first time buyers take advantage of this program
- Maximum loan amount (Los Angeles county: $625.500)
- A minimum of a 580 FICO score is required for the 3.5% down payment option
- If credit score is between 500-579, the required down payment is 10%
- Mortgage insurance of 1.75% is required
- Have many loan structures to meet a variety of borrowers needs
VA-loans are available to those who have served in the US armed forces. To obtain this loan, an interested veteran needs to request a certificate of eligibility from the VA regional office before applying for this loan. The certificate shows the veteran’s entitlement and the amount of loan guarantee. The lender is compensated by the US Department of Veterans Affairs (VA) for any losses incurred in a foreclosure. Some of the benefits when using a VA loan are the following:
- 0% down payment
- VA allows for the seller to pay all of the buyer’s closing costs
- No mortgage insurance premium is required
Purchasing a home can be very exciting for a homebuyer, however the loan process can be tedious and complicating. It is extremely important for a buyer to speak with a loan officer who is knowledgeable and familiar with several loan products. This will make the buyer extremely comfortable when making the largest financial decision of their life.