Home Loans for New Home Buyers
Trying to wade through all the home loan options available for buying a new home is a little bit like trying to find a suit that fits you – it can be perfectly snug in some places, and a terrible fit in others. But where you might keep the suit for a year or two, finding the best way to finance your new home is a decision that will stay with you typically stay with you for 10 – 30 years, depending on what kind of arrangement you ultimately work out and what you do over the years after you get your loan.
Most new home buyers learn right at the beginning of the process that research plays a big role in the purchasing process, and that starts before you even walk across the threshold of your first candidate house. Finding the best finance option for purchasing your new home can literally save you thousands of dollars over the course of a home loan, and it can have a profound effect on your budget during the entire time.
If you’re looking to buy a suit from a local department store, you probably have a pretty good idea of how suit prices run in the area (who the best mortgage professionals in the area are), but if you should be shopping in a distant community, you’ll need to do a lot more research to learn about prevailing suit prices in the distant community (who’s the best funding team around?). Now substitute ‘houses’ for ‘suits’, and you’ll be ready to go house-hunting – after you read the information below on financing options.
Conventional loans are not insured or guaranteed by any federal agency and are generally fixed-rate mortgages which carry the same interest rate throughout the life of the loan. They are often difficult to qualify for because certain criteria have to be met, such as a good credit score, a minimum income threshold, and a larger down payment.
Within the broad category of conventional loans there are two sub-categories, conforming loans and non-conforming loans. Those considered to fall into the conforming group have guidelines issued by stockholder-owned companies such as Fannie Mae or Freddie Mac. One of those guidelines, for instance, is the ceiling of any loan, which is $417,000 for a single-family home. Non-conforming loans are those which are offered by portfolio lenders, and any guidelines associated with them are dictated by the specific lending institution that underwrites the loan.
VA loans – Veterans Affairs Mortgages
These loans are guaranteed by the US Department of Veterans Affairs (the VA), which does not itself extend loans to borrowers but guarantees the mortgage made by approved lenders. This guarantee permits service personnel to secure desirable housing under favorable terms, often with no down payment, and usually with less restrictive loan qualifications.
VA loans carry a limit of $417,000 on single-family homes, except in Alaska, Hawaii, Guam, and the Virgin Islands, where the limit is $625,500. To make sure you qualify, request an eligibility certificate from the VA, and assuming you are found eligible, take your certificate with you when you apply for a VA loan.
The US Department of Housing and Urban Development (HUD) has a specific branch called the Federal Housing Administration (FHA), which offers loans requiring lower down payments, and which are easier to qualify for than many other types of loans. FHA loans are particularly well-suited to first-time buyers, because in addition to the more relaxed qualification standards, they can be initiated with as little as a 3.5% down payment.
Although it is not widely known, the US Department of Agriculture (USDA) has a home buyers assistance program, and it does not require you to purchase a farm in order to qualify. However, the program is geared toward assisting buyers of rural property, and it can finance up to 100% of a home loan by providing chosen lenders with guaranteed mortgages. Regional income limitations do apply, so you would need to check with your local USDA branch to see how much you qualify for.
Good Neighbor Next Door (GNND) Loans
This initiative helps various professionals such as teachers, law enforcement personnel, emergency medical technicians, and firefighters, move into new homes. Sponsored by HUD, this is a program which allows 50% discounts off the listed price of homes identified as being in a revitalization area. The two major requirements for eligibility in this program are of course, choosing a home in one of the specified revitalization areas, and committing to reside in it for at least 36 months.
If you happen to be a home buyer who does not have spotless credit, chances are that a conventional home loan is not in the cards for you, although if your credit history is clean as a whistle, it can mean lower interest rates and insurance rates for you. Service personnel, whether active or discharged, should check out eligibility for a VA loan, because of the agency’s guarantee, which lenders favor.
First-time home buyers should always check out FHA loans first, because of their more relaxed criteria for qualification. Rural buyers may qualify for backing from the USDA, and certain professionals may find help from GNND loans. There are a surprising number of loan programs in place to help new home buyers, and as mentioned in the beginning, the more research you do on these, the likelier it becomes that you can find suitable financing.