The way that you put together your house financing will determine how effective your entire real estate negotiation goes. You have virtually unlimited options; however, you should know about a few of the most popular. Here are the ways in which most people find the funding for their next piece of real estate.
Can I finance a house with all cash?
Cash is king, even in the expensive world of real estate. Investors will buy many fixer upper properties and even turn key homes cash in order to completely avoid the much more complicated process of involving a third party lender. If you have this kind of capital, going all cash is certainly a tempting route, although it may not always be your best option.
What is a conventional loan?
The conventional loan is the vanilla package when it comes to bringing in a third party lender to give you a mortgage payment. The lender will pay the cost of the home to the seller in full and take on the risk of the mortgage payment in exchange for your interest on the loan. Most people involve a third party lender to buy real estate, and to do this can easily cost hundreds of thousands of dollars in interest over the life of the loan. Term periods of conventional loans usually vary between 10 and 30 years.
What is a jumbo loan?
Almost as simple as a conventional loan is the jumbo loan, so named because of its increased size when compared to the conventional loan. In most cases, the conventional loan is also a conforming loan, meaning that the lender gives the borrower a maximum loan limit of $417,000. If you want a property that is more expensive than this while involving a third party lender, you will have to apply for a jumbo loan. Jumbo loan applicants are considered higher risks than conventional loan applicants because of the size of the loan and the difficulty of reselling jumbo loans on the secondary market. Your credit history, credit score, and employment history will need to be very good in order to qualify for this package without the aid of a government entity.
Can I get help from the government?
The government of the United States actually has a direct involvement in 97 percent of the home loans that are currently on the market. Just like the vast majority of people who buy a house do so with a mortgage, the majority of that population do so with a government sponsored entity (GSE). There are many advantages to working with a GSE, but it does cost the borrower more money over the life of the loan in exchange for the convenience.
What is the Federal Housing Administration (FHA)?
The FHA is one of the biggest GSEs in the nation. Many bad credit, no credit, and first time home buyers will come to the FHA for help on a mortgage payment.
The FHA does not give loans directly to any borrower. The FHA insures loans with the funds of the government, helping to insure the risk profile of the borrower in the eyes of the lender. FHA approved lenders are the entities that are actually giving the money to the deal.
What is the United States Department of Housing and Urban Development (HUD)?
HUD takes possession of many houses that were formerly under the auspices of the FHA, offering those properties up for a price that is below market value. As a borrower, if you want to buy an HUD home, you may be eligible for additional discounts that will help you obtain the property for decreased financing. These homes are sold as is, meaning that you do not have the right to make the HUD upgrade the house into a turn key property before taking possession of it. In order to live in or rent out the house, you will probably have to include renovations in your house financing. You can do this through an FHA 203k loan, a loan that combines the home purchase and the home renovation into a single loan package.
What is the United States Department of Veterans Affairs (VA)?
If you are a military veteran, then you may be able to use the VA to get a great price and plenty of amenities on a home. Spouses of active duty and dead soldiers may also take advantage of the VA. The VA offers benefits such as a lower down payment, a waiver on the the private mortgage insurance (PMI) payment that is usually a requirement of the lender, and first choice of properties that are not yet on the market. As a borrower, you will pay for these VA privileges down the road in fees and higher interest rates, but the VA can help you to create an affordable payment package that you would otherwise not have access to.
What is the United States Department of Agriculture (USDA)?
Yet another government program that can help you with house financing is the USDA under its Rural Development Program. If the house that you want is in an eligible geographic area, you may be eligible for lower total prices, first look privileges, lower down payment options, and other benefits.
What is seller financing?
The home seller can also offer third party financing in the same way that a bank does.
2 Point Highlight
Jumbo loan applicants are considered higher risks than conventional loan applicants because of the size of the loan and the difficulty of reselling jumbo loans on the secondary market.
The VA offers benefits such as a lower down payment, a waiver on the the private mortgage insurance (PMI) payment that is usually a requirement of the lender, and first choice of properties that are not yet on the market.
