Buying real estate is exciting. Whether you are trying to find the perfect starter home, moving on to bigger and better, or investing in real estate for added income; it is a fantastic decision that can help you to secure your financial future. But without large sums of extra cash at your disposal, how do you pay for it? A variety of loans exist for the sole purpose of buying real estate.
These loans are commonly used when purchasing a home. They are not insured or guaranteed by the federal government. The guidelines for a conventional loan are set by Fannie Mae and Freddie Mac. Rates may be fixed or adjustable. For a single family home, the maximum loan amount depends on which state you live in. These maximums range from $453,200 to $1,307,175 in most states. In states with a higher cost of living, the range varies from $679,650 to $1,960,750. Conventional loans require a minimum down payment of at least 3% of the homes agreed upon price for a fixed rate loan. For an adjustable loan, the down payment requirement is at least 10%. For purchases requiring cash (primarily auctions), you can take out up to 85% of your pre approved loan for purchasing a home. Or, you can apply for a loan once you have found a home you want to buy.
FHA (Federal Housing Administration) Loan
This is a mortgage insurance backed loan, provided by an FHA-approved lender. The loan max is set per state, most reaching a maximum loan amount of $271, 050. Some states with higher cost of living have a higher max loan amount of $365,700 to $448,500. A down payment of at least 3.5% of the homes agreed upon price is required to obtain an FHA loan. Besides purchasing a single family home, an FHA loan can also be applied to 2, 3, and 4 unit homes as well as approved condos. Unlike some types of loans, the FHA loan doesn’t required proof of reserve funds. But, you will always pay for private mortgage insurance when buying with an FHA loan. There are no penalties for paying off the loan early. You can also not use an FHA loan (in most cases) to buy a home if you have an existing mortgage. To receive approval for an FHA loan, your debt-to-income ration cannot exceed 50%.
VA (Veteran Assistance ) Loan
This loan is specifically for servicemembers, veterans, and eligible surviving spouses looking to purchase a home. VA loans are secured through private lenders. The VA guarantees a portion of the loan which in return allows lenders to offer the home buyer less extensive terms. The VA loan requires no down payment. To qualify for a VA loan, past service members must have served for at least 90 days during wartime or 181 continuous days during peacetime without an dishonorable discharge. Enlisted servicememebers who began service after 9/7/1980 have a two year service requirement. Officers who began services after 10/16/1981 also have a two year service requirement to receive a VA loan. With the VA loan, buyers can receive up to 25% of a home loan to pay for their home with a max limit of $113,275. This limits the total home loan amount to $453,100. As well as meeting service requirements, VA loans will also be approved or denied based on credit and income requirements.
These are the most common forms of loans used to purchase single family homes and other personal real estate. To learn more about these types of loans, or other options including USDA and ARM loans, contact Jensen and Company.