Have you ever wondered what the difference is between an FHA, conventional, and VA loan? In this video, I’m going to walk you through how to determine the best loan for you. We’ll look at the qualifications and benefits of each option so you can make the right choice for your situation.
Choosing The Right Loan
The reason that choosing a loan is so important is that every dollar you pay in interest counts. Getting the best loan for you will help you maximize your investment. For example, one of the things you’re going to want to think about is how long you are going to own this property.
Are you going to live there for 3 years, 5 years, or 10 years? Will this become a rental, producing cash flow in the future? How much money do you have for a downpayment? And better yet, how is your credit? You’re going to want to take all of these things into consideration when determining the best loan for you.
There are three main loan types that homebuyers encounter in the market: FHA, conventional, and VA loans. Each of these loan types come with their own sets of pros and cons. We’re going to lay them all out for you so you know which is best for you.
The first loan we’ll look at is FHA. This loan is ideal for the first-time homebuyer, but you don’t have to be. An FHA loan is a government-backed loan program that lets buyers get into the house with as little as 3.5% down.
What’s really cool about this program is that if you’re able to negotiate with the seller, you can get up to 6% back of your sales price to use towards your closing costs. This helps you get into the house with just 3.5% out of pocket. Another popular component with the FHA loan is you can get one with lower credit scores, all the way to a 580.
One of the cons of an FHA loan is that you can expect to pay higher closing costs. For example, you’ll have to pay for a monthly mortgage insurance premium for the life of the loan. It does decrease over time, but it never falls off. What does this mean to you as a buyer? It’s a great loan program to help you get into a house. Just know it’s a little bit more expensive over the life of the loan.
Additionally, if you end up buying in a condo association, the condo does have to be on the FHA or HUDs approval list. Because of that, you may want to consider looking at a conventional loan. It’s very common for a lot of condo associations to not be approved for an FHA loan, so your agent and your lender will want to look into that.
Now that we know about the FHA loan, let’s talk about conventional loans. These loans are typically the best option for most homebuyers as long as you qualify. They’re best suited for people with higher credit scores and a little bit of money to work with.
The reason why most people go with a conventional loan is that they have the best terms out there, as you need as little as 3% or 5% down. If you’re a first-time homebuyer or a repeat buyer, closing costs, interest rates, and monthly mortgage insurance are more competitive as long as you qualify.
As far as cons, there really aren’t any cons with this type of loan. It’s the type of loan that most sellers want to see when they have an offer come in on their house.
Lastly, let’s talk about VA loans. VA loans stand for Veterans Affairs, and these are loans that are catered to the Veterans of America. They’re one of the best types of loans that you can get.
The best part about a VA loan is you can do up to 100% financing. There’s also no monthly mortgage insurance, and you can still ask the seller if you can negotiate it to pay up to 6% back towards your closing costs. It’s because of this that it is very common to see our veterans get into a house with little to no money out of pocket.
In my opinion, this is the only product that’s better than a conventional loan if you’re a veteran. However, there are some cons to a VA loan. First, you have to be a veteran. And second, sometimes sellers don’t understand what a VA loan is. That’s why you need a good lender to explain it to them for you.
When sellers are looking at the terms on contracts, they see that VA loans have 100% financing. There’s a stigma that comes along with that. That’s why it takes a good lender to sell the loan on your behalf because, in reality, VA loans are actually better performing loans than conventional.
Getting Your Dream Home
I hope this helped you learn about the three main different types of loans. If you have any questions about them, please feel free to reach out to me or my team and we’d be happy to help. If you want help getting your foot in the door of your next home, please make sure you give us a call.
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