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What is the best home loan plan

What is the best home loan plan?
A new purchase like a house is a big commitment and responsibility. While it is exciting to get a new asset, it can even be overwhelming due to the costs needed to secure it completely. One of the major concerns of new homeowners is understanding mortgage plans and which works best for them. Let’s understand which home loan plan works best for homeowners.

Conventional mortgage
These are the kinds of home loans that are not insured or backed by the federal government. This type of mortgage loan is usually backed by two well-known government-sponsored institutes named Fannie Mae and Freddie Mac which typically buy or sell most of the conventional home loans in the country. If a homebuyer has good credit, an income history with a stable current job, and the ability to put 3% down payment on the total cost, they qualify for this kind of mortgage. However, if you want to avoid private mortgage insurance, you should be willing to make a 20% down payment of the total cost.

Conforming mortgage
These are the kinds of loans where there is an upper limit set to the borrowed amount. These maximum limits vary from region to region, and the terms can be inquired with your lender. For example, the maximum limit on one-unit houses or properties is approximately $550,000 by the Federal Housing Finance Agency.

However, if you live in expensive cities or areas, this maximum limit shifts to address this capital gap. New York or San Francisco are some of the cities that have a higher baseline.

Non-conforming mortgage
Within non-conforming mortgages, there is something called a Jumbo loan, which essentially means a loan amount that exceeds the conforming limit. As mentioned above, this limit is different in different regions.

This loan cannot be bought or sold by Freddie Mac or Fannie Mae, as it is non-conforming and has high risk potential. The homebuyer must make a 20% down payment or even more and show large cash reserves along with strong credit to acquire this kind of a mortgage loan.

Government-insured federal housing administration mortgage
Insured by the Federal Housing Administration, this is typically the kind of loan that low- to middle-income homebuyers choose. In this type of mortgage plan, the borrower only has to put down as little as 3.5% of the home’s total cost and can get the rest on this loan.

Typically known as Federal Housing Administration loans, this is one of the safest options for those who cannot put a large sum of down payment. The criteria for this kind of loan are also relaxed; for example, the credit score can be as low as 580 to qualify for a 3.5% down payment.

Government insured veterans affairs loans
As the name suggests, this is not only for veterans but also for qualified military service members and their spouses. With this kind of loan, there can be 100% financing with zero down payment and low interest rate and no mortgage insurance premium. While there is a funding fee for this kind of loan, some members do not have to pay this amount. Listed below are the criteria to avoid such fees:

  • Someone who received a Purple Heart for their service.
  • Spouses of veterans who died on duty or due to a disability caused while on-duty.
  • Those who are receiving Veteran Affairs benefits for a disability caused while on-duty.
  • Veterans who are entitled to Veteran Affairs compensation for a disability caused while on-duty and they haven’t reached retirement or receive active duty pay.
  • A service member with a proposed or memorandum rating is eligible for benefits or compensation because of a pre-discharge claim.

Government insured US Department of Agriculture loans
As the name suggests, this kind of loan is designed specifically for low-income families, homeowners living in rural areas. The only requirement for this kind of loan is that the property must pass USDA eligibility rules. Homeowners in rural areas who can’t pass conventional loan criteria opt for this kind of loan where the down payment is next to nothing.

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