Sorting through the many avenues for financing a home – especially if you are a first-time homebuyer – can seem as overwhelming as the actual house hunt itself. Give yourself the time you need to thoroughly research all the available options since choosing the right mortgage can save you a considerable amount of money. Let’s take a look at home financing options.
Before you begin your search for financing, make sure you have the following information on hand:
- Your annual income from the past two years. To make it easier to qualify, include any taxable income you have–occasionally, a part-time job can have a big impact on whether or not you qualify.
- The amount of money you have in savings to spend on down payment and closing costs.
- Your credit score.
- Any current debts you have (e.g., student loans, car payments, etc.)
- The areas in which you are looking to purchase–depending on the region, different programs may be available for you.
Understand Different Loan Types and Home Financing
Conventional Loan: This is what most people imagine when they think of a mortgage. A conventional loan is provided by a lender like a bank or credit union and is not guaranteed by the federal government. This means that, should you fail to pay your mortgage, the lender has to take that loss. Since the lender takes a higher risk on you with a conventional loan, it is harder to qualify. You generally need to have a high credit score, a decent down payment, and a low debt-to-income ratio. However, if you can get a conventional loan, they generally cost less than a federally-backed loan.
Federal Housing Administration (FHA) Loan: First-time homebuyers often do not have a ton of money saved up for a sizeable down payment. In that case, a mortgage like an FHA loan is appealing. You can put as little as 3.5% down, and you do not need as high of a credit score. These loans may have a bit of a higher monthly payment than conventional loans because mortgage insurance is required.
USDA Home Loan: This is a great program for first-time homebuyers. The USDA is given grant money to support single-family home development in rural areas. However, the term “rural” tends to be loose; in many cases, areas just 15-25 minutes outside a large city qualify for this loan. Mortgages through the USDA are available to first-time homebuyers with decent credit scores (there is no minimum, but to be automatically approved, you need at least a 640), fixed-rate interest, and 0% down–quite an appealing deal to young buyers! Houses bought under this loan are usually less expensive because they are outside of the city center. Still, with the program’s continued success, there is great potential for the home value to rise as the area becomes more developed.
Department of Veterans Affairs (VA) Loan: Like FHA and USDA loans, a VA loan is guaranteed by the government. Before searching for the right lender, request proof of your eligibility from the VA. You can present this to your lender when you apply for your mortgage. VA loans usually waive the down payment.
Other Loans: Many local regions have additional programs that you may qualify for and suit you better than these options. Do your research on the areas in which you plan to buy to understand the loans available to you.
Homeowners can also acquire these loans for home renovations and remodeling projects. If your Sarasota area home requires repair or improvement, call West Coast Design Build Florida for more information on financing your home project.
