Buying a Home → Before You Buy
How to Finance Your Home (Types of Loans)
Not all home loans are the same, and your unique situation will determine which type of loan is best for you. Here are a few of the different types of financing options:
A VA loan is a mortgage loan type offered by the Department of Veterans Affairs, and this type of loan is available to active duty service members and veterans. A VA loan offers some fantastic benefits—according to the VA.gov website, “90% of all VA-backed home loans are made without a down payment.”
You can find more information on VA loans here.
Offered by the Federal Housing Administration, FHA loans are government-backed loans that are characterized by low down payments, low closing costs, and lower credit score requirements (although a higher credit score will get you a lower interest rate).
FHA 203(k) Rehabilitation Loans
This type of loan can help you purchase a property that is in need of significant improvements. This type of loan will not only help you buy a home, but part of the loan will include funds to make necessary renovations to the home.
A conventional loan (aka a conventional mortgage) is not backed by the government, and these types of loans have traditionally required a 20% down payment (which allows buyers to opt out of paying private mortgage insurance (PMI), which can quickly add up over time. These types of loans are often considered riskier by lenders, so there are stricter requirements (you’ll need a higher credit score, for example).
USDA loans are offered by the United States Department of Agriculture, and this zero-down mortgage option is intended for low to moderate income families who live in rural areas.
Hard Money Loans
This type of short-term loan is a potential loan option for those who may need a loan very quickly, or when a traditional lender won’t approve a loan. These loans have higher interest rates, and are popular options for investors who are flipping homes.
Cash offers are appealing to sellers in that they are less risky and simpler, meaning a quick closing. Cash offers also don’t require an appraisal. Having a cash offer doesn’t automatically mean you’ll beat out everyone else in a multiple offer situation, but sellers who want to lessen the chances of an offer falling through due to financing issues are likely to find cash offers hard to beat.