As you prepare to purchase your first home, it's important to determine which mortgage type is right for you and choose one that has the most benefits. Some of your options are conventional, FHA, VA, and rural loans in Vermilion Co. Illinois. Here are some things that you should know about each one to determine which option is right for you.
A conventional loan is also called a conforming loan with most loans being sold to a GSE called Freddie Mac or Fannie Mae. In order to qualify for this type of loan, you would need to have a minimum down payment of 5% of the purchase price; however, this can be a gift from a family member or significant other. It’s beneficial to pay 20% in order to avoid paying mortgage insurance, which is a small additional fee each month on your payment until you have equity of 80% in the home’s value.
A Federal Housing Administration loan is a major source for low to moderate income buyers and the loan is insured by the government. FHA loans require 3.5% minimum for a down payment and this loan will require mortgage insurance which is an additional monthly fee added to your payment for the entire loan period. The down payment can come from you or be gifted from a parent and the seller, if agreed upon, can pay for your closings costs. There are maximum loan limits that change by location and this loan program generally requires a lower credit score than conventional; this makes it a great choice for qualified first home buyers.
USDA and Rural Development (RD) loans are government-backed loans for eligible rural areas. There are income limits for these loans, but people with lower credit scores and no money for down payments are still eligible. The loans provide 100% financing for the purchase and if a seller pays closing costs there is no money required to purchase the new home.
Veterans, members of the Armed Services, and spouses of deceased veterans can apply for Veteran's Administration (VA) loans. Homebuyers with lower credit scores and no money for down payments can still apply for these loans. The loans provide 100% financing, and one of the benefits is there is no additional monthly fee for mortgage insurance payments.
Which mortgage type is right for you? There are so many considerations with each loan that it is very important to schedule an appointment with your local lender to determine which program is right for you and your family.