The type of loan that best fits your objectives will dictate the types of homes that you will be searching for. This discussion summarizes the types of loan products and other methods of payment.
-Conventional loans are initially backed by the financial entities who offer the loan. That entity may then sell the loan as a part of a larger investment or retain the loan as a part of their investment portfolio. These loans usually require a higher down payment to acquire, but usually offer lower overall interest rates. A primary benefit about conventional lending is that once you have acquired 20% equity in the home, you can cease paying PMI on the loan.
-FHA loans are issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). FHA loans are designed for low-to- moderate income borrowers who are unable to make a large down payment. The borrower must pay the PMI for the duration of the loan. FHA loans require a standard level condition of habitability prior to the sale.
-USDA Loans, also known as the USDA Rural Development Guaranteed Housing Loan Program, is a loan offered by the United States Department of Agriculture. The objective of these loans is to either assist, or redevelop, rural areas. These loans can offer 100% financing with contributions toward closing costs from the seller or through rolling these costs into the mortgage.
-VA loans are issued by qualified lenders and guaranteed by the United States Department of Veterans Affairs (VA) as a benefit to military service members and their surviving un-married spouses. These loans require the homes be in “turnkey” condition prior to the sale. There are no down payment requirements for a VA loan. An active duty veteran (buyer) has a lifetime pool of which to draw loan amounts from dependent upon tenure in the service branch. This allows for a veteran to purchase a home and then deploy to another area and purchase another home without necessarily having to sell the initial home.
Hard Money Loans
-A hard money loan is a specific type of financing through which the buyer receives funds secured by the real property. Hard money loans are typically issued by private investors or companies and are typically intended to be short term. Many homeowners who are purchasing a new home, and who have yet to sell their current home use hard money loans called “bridge loans”. Due to the risk, these loans require higher interest rates.