Buying a home can be a confusing, scaring and stressful process. A lot of individuals are not getting good information on home buying, whether it is online or a real estate industry source. If you don’t have cash to purchase a home, then you must get financing. The different basic financing routes you can take to get a house are VA, Conventional, FHA, or Jumbo. Each one has its own advantages and disadvantages.
By far the best route is doing a VA loan. This is loan that is meant for active military members or veterans who have served in the military. It is a guaranteed loan through the Department of Veteran’s Affairs. This route offers the cheapest payment since there is no mortgage insurance, and the rates are the lowest of all products. There are also no closing costs and most of the time you don’t have to have a down-payment. The minimum credit score needed is 620.
Going Conventional is the 2nd best route if you are not eligible for a VA loan. Most people think you have to put 20% down. The minimum down-payment required is 5%, and sometimes you can put 3% down. If you put less than 20% down, then there is going to be mortgage insurance. You have the option of paying this monthly, a one time premium up-front, or you can pay a slightly higher rate and not have mortgage insurance. The minimum credit score needed to go conventional is 600.
FHA is another route you can go. This is a loan that is insured by the Federal Housing Administration. The minimum down-payment required is 3.5%. The lender usually pays all the closing costs so that all you come in with is the down-payment. The payment is going to be higher than the rest of the products due to the monthly FHA mortgage insurance. The minimum credit score needed is 560. Individuals typically go FHA if they don’t qualify for a loan going Conventional. So if you end up purchasing a home going FHA, then your ultimate goal is to eventually refinance out of it and into a Conventional loan.
The last route is doing a Jumbo loan. In Orange County, if the loan amount exceeds $625,500 the loan would be considered Jumbo. The minimum down-payment is 10% and usually you need to have a credit score above 700. You also typically have to 6 months in reserves/rainy day fund set aside to show you have ability to make the payments if something drastic happens. These rates used to be higher than conventional. Now they are about the same or a little better.
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