When purchasing a home finding the right loan program can save you hundreds of thousands of dollars over the life of the loan.  Therefore, it is very important to that you know your loan options and the pros and cons of each loan program. Today we are going to look at the overview of various loan programs and the pros and cons of each!

 

USDA Loans

                                                                 Overview

 

A USDA loan is an excellent loan program that does not require a down payment! That is correct! You can get into your dream home without a down payment. For eligibility purposes the home must be in a USDA designated rural area. Luckily for home buyers, most of the Eastern Shore is eligible for USDA loans. (the only ineligible places are Ocean City and parts of Salisbury) USDA loans are typically going to get you into your home with the lowest down payment and least money out of pocket. USDA loans are GREAT for first time home buyers.

Pros:

• No Down Payment Required
• Low Mortgage Insurance
• Low interest rate
• Can get you into a new home with very little money out of pocket.

Cons:

• House hold income limits. For a 1-4 person family- $96,450. 5-7 person family- $127,300
• Strict DTI ratios standards (What is DTI?)
• CANNOT cancel mortgage insurance
• No fixer uppers. House must be safe, sanitary, and structurally sound. No peeling paint, no mold, steady foundation ect.

 

FHA Loans

 

                                                                   Overview

 

An FHA loan is another great LOW down payment loan that are great for first time home buyers. FHA loans are overseen by the US Department of Housing and Urban Development (HUD). FHA loans require a minimum of 3.5% down on the sales price of a home. They are known for flexible underwriting requirements and low interest rates. FHA loans have a onetime Upfront Mortgage Insurance Premium (UFMIP) that most buyers elect to finance into the loan.

Pros:

• Requires a LOW 3.5% Down
• Flexible underwriting guidelines.
• Can have DTI >50%
• Low Interest Rates
• No income limits

Cons:

• Cannot cancel mortgage insurance (Unless you put more than 10% Down. Then it cancels after 11 years)
• No fixer uppers. House must be safe, sanitary, and structurally sound. No peeling paint, no mold, steady foundation ect.
• Up Front Mortgage Insurance eats into your equity of your home.

Conventional Loans

 

                                                                    Overview

 

Conventional loans more than likely (but not always!) are for your experience home buyers. Conventional loans are very much shaped by your credit score. While FHA, USDA, and VA loans are more forgiving on credit scores, conventional loans are geared to home buyers with credit scores of 720+. Conventional loans Mortgage insurance dependent on credit score and amount of money you put down. The higher the credit score and down payment, the less you will pay in mortgage insurance. When you make a 20% down payment on the purchase you DO NOT have mortgage insurance. When financing a vacation or investment property you will be using a conventional loan. Contrary to popular belief the minimum down payment required for conventional loans is 3%

Pros:

• Can cancel mortgage insurance
• Low down payments as low as 3%
• Used to purchase vacation and investment properties
• Lenient property requirements

Cons:

• Borrowers with lower credit scores will face higher interest rates and mortgage insurance.
• Ineligible if you’ve had bankruptcy or foreclosures in the last 7 years.

VA Loans

 

                                                                     Overview

 

VA loans are another 0% down payment loan program available to veterans, service members and military spouses. VA loans have great rates, no mortgage insurance, and less strict qualification standards.

Pros:

• 0% Down payment loan
• No mortgage insurance
• Great rates
• Less strict underwriting requirements

Cons:

• There is a funding fee associated with VA loans. In some cases, it can be waived

Know Your Loan Options!

 

It is very important as a home buyer to know your financing options. The difference between a USDA loan and a FHA loan can result in thousands of dollars out of your pocket at closing as well as a higher monthly payment. When getting pre-approved we will review your needs and illustrate why loan program A may be a better option than Loan Program B. Together we will select the best financing options that best fits your needs. Get in contact with me today or pre-qualify here!