Three Types of Home Loans To Consider When Buying a Home
Buying a home is no small feat. Not only can the process be stressful and grueling but it’s also unbelievably expensive. However, there’s no denying that buying a home is a major part of the American Dream. One of the main goals in life of so many Americans is to, one day, own their own home. Though so many people work their entire lives to meet this goal, it might appear impossible. However, there are dozens of options when it comes to loans and financial assistance. Here are just three types of loans to consider when buying a home.
USDA Home Loans
USDA Rural Development Loans are housing loans offered by the United States Department of Agriculture, the same people who certify your steaks and hamburgers. So why is the USDA offering housing loans? The USDA offers housing loans to encourage home buyers to move from developed and industrialized areas to rural developing communities. One way to encourage someone to move somewhere is to offer them affordable housing. The major catch of the USDA Housing Loan is that the home you wish to purchase must be located outside of suburban and urban communities.
The USDA offers various tools to determine whether or not you’re eligible for a loan. In addition to this loan being restricted to certain areas of the United States, most lower to middle-income applicants will have better luck than upper-middle and upper-income applicants. Again, this loan is meant for younger families and individuals in a middle or lower income bracket looking for a home outside of the city. However, if you’re approved for this loan, you’re in great shape as it’s borrower-friendly.
Here’s an overview of the USDA Home Loan as compared to a Conventional Home Loan
- USDA Loan: Limited to Select Areas, Primary Housing Only
- Conventional: Not Limited, All Housing
- No Down Payment
- Fees, $100 per $100K Borrowed
- Monthly Premium
- Insurance Required, Can Be Added to Mortgage
- Insurance Varies, Usually 20% of Loan Amount
- 640 FICO Score of Higher
VA/Military Home Loans
VA Home Loans are another exclusive and restricted loan, however, it might be less restricted than you think. The following are eligible for VA and Military Housing Loans; active duty military, veterans, reservists, and spouses of those in the military or military veterans. If you fit into that list, it’s recommended that you apply for a VA Housing Loan. The VA Loan honors those who serve, have served, or have made sacrifices for a loved one who is serving or has served. It’s a borrower-friendly loan but still features some fees.
The VA/Military Housing Loan is not restricted to a geographical area or region, however, can only be used for a primary property. Below is a comparison of the VA/Military Loan and a Conventional Housing Loan.
- Primary Property Only
- No Down Payment
- Fees Due to VA Upon Applying
- No Insurance Required
- Insurance Required, Typically 20% of Loan
- FICO Score 620+
Both options, if applicable to the home buyer, are great alternatives to conventional fixed rate home loans that can be burdensome with high down payments, expensive insurance, and low borrowing amounts. If you’re considering housing in a rural community or are part of the US Military, these loans may be a great fit for you and your family.