Breaking Down the Most Common Loan Options | DOBI
 

Breaking Down the Most Common Loan Options

Spoiler Alert: You Don't Need to Put 20% Down 🤫

types of loans

Buying a home, especially your first one, is an exciting time, but can also feel overwhelming.  You should be 100% sure that you’re ready for homeownership before you take on a mortgage. The average mortgage loan term is 15 – 30 years and while you don’t need to stay in your home for that amount of time, buying a home is still a major commitment.

Some helpful things to consider when determining your purchase include ensuring you have an emergency fund that can cover up to 3 months of expenses and that your finances are in order. 

Once you’ve decided you are ready to buy, you’ll need to secure a home loan. The type of loan you choose will determine your down payment amount, what type of home you can buy, and more. Today on the blog, were’ breaking down some of the most common loans:

Conventional Loans

Conventional loans are the most common type of home loans. You can purchase a home with as little as 3% down. The pros of a conventional loan are that you don’t have PMI when you put 20% down, PMI is automatically removed when the loan-to-value reaches 78%, and can be used for second homes and investment properties. The downside to conventional loans are that there are higher rates for lower credit scores, tougher credit guidelines, and income limits. 

FHA Loans

An FHA loan can allow you to buy a home with less strict financial and credit score requirements. You can get an FHA loan with a 3.5% down payment and a credit score as low as 580. Some of the pros with FHA loans include more lenient credit score guidelines, better rates than conventional for lower credit borrowers, and lower mortgage insurance rates than conventional. Cons include insurance that you can’t cancel, it can only be used for owner-occupied homes only (not second or vacation homes), and the loan limits vary based on region. 

USDA loans

USDA loans are for people who want to buy a home in a qualified rural or suburban area. You can get a USDA loan with 0% down, subject to household income restrictions. Pros to the USDA loan include flexible credit guidelines and lower fixed interest rates, while the cons include geographical restrictions, applies to single-family homes only, and there is a max income limit. 

VA loans

VA loans are exclusively for veterans and members of the armed forces and National Guard and qualified spouses. You can buy a home with 0% down if you qualify for a VA loan. VA loans offer easier credit and no prepayment penalty, while the downsides include slower closing due to a more complex transaction and a VA funding fee is required up front to fund the loan.

Ready to buy? When you work with a DOBI agent, rest assured we’ll take you through every step of the process with ease. Check out our home buyers guide to learn more.