If you’re in the beginning stages of the home-buying process, chances are you’re also looking to take out a loan. With a wide variety of types of loans, rules surrounding them, and processes you have to go through, it can quickly become overwhelming. That’s why I broke down loan types here: to help you figure out which is best for you and how you can get the best rate.
This information is for the state of North Carolina.
Conventional Loans
FAST FACTS:
- The most common loan type
- Minimum Down Payment: 3%
- Credit Score: 640 and above (The higher your credit score, the lower your down payment)
Conventional Loans are best for borrowers with good credit scores, and can be used to purchase a primary residence or a second home. These loans are NOT backed by the government, unlike several of the other loan types listed below. After securing a credit score above 640 and a minimum down payment of 3%, you can move forward with this loan type. Keep in mind that if your loan payment is over 20%, you don’t need to pay for PMI (Private Mortgage Insurance), so your monthly payment will be lower. The 30-year fixed rate conventional mortgage is the most common choice for those purchasing a home.
VA Loan
FAST FACTS:
- Only for veterans, service members and their spouses
- Minimum Down Payment: 0%
- Credit Score: 640 and above
VA (Veterans Affairs) Loans are an exclusive loan type for service members, veterans, and their spouses. Utilizing this unique loan type, you don’t need a down payment or PMI, and you are eligible for competitively low interest rates.For more information on VA loans, check out this government website: https://www.benefits.va.gov/homeloans/
FHA Loan
FAST FACTS:
- Popular among first-time home buyers
- Minimum Down Payment: 3.5% Required
- Credit Score: 640
FHA (Federal Housing Administration) Loans are insured by the FHA, hence their namesake. They make it easier for new homeowners or senior citizens to secure a mortgage because they require a lower credit score. With a down payment of 3.5% and closing costs that can often be rolled into your own, they offer a good alternative for a wide variety of buyers.
USDA Loan
FAST FACTS:
- For buyers purchasing in rural areas
- Minimum Down Payment: 0%
- Credit Score: 640 or above
A USDA (U.S. Department of Agriculture) Loan is one guaranteed from the USDA and is intended to help buyers who are purchasing a home in a rural area. These loans require little to no down payment and do not require PMI. Buyers do, however, have to live in the home (not a second home or investment). To determine your eligibility for a USDA loan, visit their website: https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
Jumbo Loan
FAST FACTS:
- For high-value property
- Minimum Down Payment: 10% (Increases with loan size)
- Credit Score: 700
If you need a loan larger than $647,200, a jumbo loan may be the option for you. They are intended for buyers looking to purchase property of high value and allow you to borrow more money than a conventional loan. In order to qualify, you must have a minimum credit score of 700 and a minimum down payment of 10%, so they can be harder to obtain than the other types listed here.
So, before jumping feet first into the home buying process, have a good estimate of the down payment you’ll be able to provide, and the monthly mortgage payment you’ll be able to make. These two things, combined with a good credit score, can give you a great head start in your exciting homeownership journey!
If you’re ready to begin this invigorating endeavor, or if you have any questions, feel free to reach out to me via email!
-Jenna
