Understanding and choosing a home loan can seem like an overwhelming process, but we're here to break it down for you! There are four most common loan types and we'll go over the basics of each, along with a quick example.
First, a Conventional Loan. With this type of loan, there are no limits on income, area, or occupancy type. These loans usually have competitive interest rates and require a minimum 3% down payment. It's a good idea to know your credit score as well because these loans do require 620 or higher.
Next, we have FHA Loans. These loans must be applied to your primary residence only. They typically have lower income limits and lower rates but require a minimum 3.5% down payment. A credit score of 580 or higher is also required.
USDA Loans are our third type to consider. In order to be eligible, household income must meet certain guidelines and a minimum credit score of 640 is required. Additionally, the home must be located in an eligible rural area, as defined by USDA, and it must also be the primary residence. On the plus side, no down payment is required for USDA Loans.
Lastly, we'll take a look at VA Loans. In order to qualify, the buyer must be active military or a veteran. These also must be primary residence loans but they usually have much lower interest rates and no down payment is necessary. The minimum credit score varies between 580-620, depending on other factors.
Now that we've broken each loan type down a bit, let's take a look at an example with each type next to each other. In the example, a home is being purchased for $500,000, 30 Year Fixed Rate Loan.
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