You took a giant leap of faith and decided to buy a home. Congratulations! This is one of the most exciting purchases you’ll ever make. Unless you’re sitting on piles of cash, you’ll need to finance your home. There are several different types of mortgages, but all of the jargon can get confusing. Whatever you do, don’t underestimate the importance of your lender. They really know best. They sit through hours of mind-numbing classes, read a metric ton of mortgage information, and attend stuffy conferences in order to stay on top of the latest mortgage laws and trends. They do all of these things so that you, the clients, and we, the Realtors don’t have to. It’s so important to work with a lender you trust and lean on them for guidance. That being said, here’s a quick breakdown of the mortgage products we frequently work with.
VA Loans are government backed loans that are serviced by traditional banks. They’re great for buyers with little or no money to put down. In fact, VA financing is available with 0% down! You are eligible for a VA Loan if you or your spouse have served in the military. In addition to the usual documents, your lender will need proof of military service. If you’ve used a VA Loan product before, don’t despair. There is a common misconception that VA Loans can only be used once. This simply isn’t true. You can use them multiple times, up to a certain amount. Check with your lender for more information.
USDA Loans are also government backed. These too are serviced by traditional banks and can be had for 0% down. There are several eligibility requirements for USDA Loans. The property you purchase must be in a “rural” area. If you’re interested in using this type of loan, it’s relatively easy for your Realtor to find out if a particular address is eligible. There are multiple locations in Delaware that qualify. Don’t worry, they’re not all isolated from civilization in the middle of nowhere. You’d be surprised! Other requirements include a maximum income, a minimum credit score and a maximum DTI (Debt to Income Ratio). These requirements vary by location and during the pre-approval process, your lender will be able to tell you if you are eligible.
Another government backed loan, FHA loans are for First Time Buyers. Also serviced by traditional banks, these loans require a low down payment of 3.5%. Nobody likes difficult math, so let’s keep it simple:
If you’ve owned a home in the past, you may still qualify for an FHA Loan. The term, “First Time Buyer” is relative. If you haven’t been a homeowner in the past 3 years and you meet the eligibility requirements, an FHA Loan is yours for the taking. A bit more lenient than USDA, FHA Loans still have credit score, DTI, income, and purchase price requirements. During the pre-approval process, your lender will let you know if you qualify.
The easiest type of loan to get, conventional loans are the way to go if you can’t meet the requirements of a government backed loan and have some money saved up. With down payments averaging around 20%, these loans require a heftier out-of-pocket amount. Ready for some more simple math?
Because the buyer is putting down a significant portion of the purchase price, these loans are a little easier to get. Banks feel more confident when buyers have some skin in the game. As always, your lender will guide you through the process.
And there you have it: The quick and dirty facts on mortgages. If you thought that was boring, imagine how your lender feels!
As always, we’re here to help: If you have questions, or are ready to buy a home, contact us or leave a comment below!