Which type of loan makes the most sense for me?

Dated: June 3 2021

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Which type of loan makes the most sense for me? 


There are a lot of different types of loans that you can use in order to purchase a home - let's look at the basic 3 options that are available - 

1. Conventional - this can be a cost-efficient option - depending on your credit worthiness and financial situation. Typically requires a minimum credit score of 620 (the higher the credit score usually relates to a lower interest rate), a debt to income ratio can be no more than 43%, your down payment can be as little as 3% but you should be aware that anything less than a 20% down payment will require a PMI (Private Mortgage Insurance) which protects the lender in case of failure to make the monthly payments. Once you reach the 78% of the original home value, it can be cancelled. This type of a loan is typically the one that is considered "the most solid" of loans - it's not backed by the government so there are more stringent qualifications. The more down payment you have, the better it looks to a seller. 

2. FHA - Federal Housing Authority -  this type of loan is a government backed loan - usually requires a minimum credit score of 580 - (a 500 score is a potential but then you need 10% down payment), typically requires at least 3.5% down payment and allows up to 50% of a debt to income ratio. With an FHA loan, you will have MIP (mortgage insurance premium - similar to PMI in conventional loans) however unlike PMI, MIP cannot be cancelled...you are paying the extra amount per month until you can refinance to a conventional mortgage. 

3. DVA - Department of Veterans Affairs - this type of loan is also a government backed loan available to our veterans - generally requires no money down, the credit score should be at least a 640, the interest rates are typically lower than conventional (come on, these are the people that have served our country - they deserve as many "perks" as they possibly can get!!!) and it can only be used to purchase a primary residence - no vacation homes for example. The challenge with this loan is that with having $0 for a down payment, some sellers can get nervous as to the "reliability" of the buyer. There is also a VA funding fee of 1.4%-3.6% of the loan amount that can be charged to the seller - the buyer can choose to "add" this amount to the offer to offset the cost to the seller, if the funds are available. 

Alrighty - that's the nuts and bolts of the types of loans - of course there are multiple programs out there that are available but usually they will fall within one of these 3 categories...hopefully that all made sense and you feel more knowledgeable about the different types of loans out there!

As always, please feel free to ask questions - we are here to help!!!
 

Call Mike at 612-685-0927 or Becki at 952-220-5872
Info@MeyerRealEstateTeam.com
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Meyer Real Estate Team

With Mike's background in construction/real estate and Becki's marketing experience in the physical therapy world, the two joined forces to create the ultimate team, both in real estate and in their f....

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