Q. What is a Conventional loan and what is a Government Loan? Which loan type is better for you?
A. You must first understand the difference in the two different types of loans. According to the home buying institute, “A conventional loan is one that is not insured by the government in any way. This home loan is made in the private sector with no form of government backing.” A government loan according to the home buying institute “is insured by some type of federal agency, such as the Department of Veteran Affairs...and the lender receives insurance from the federal government.” Check out the pros and cons of conventional loans, as well as the other types of federal based loans below.
Conventional loan pros and cons:
Pros- There are no dollar constraints on a conventional loan. You also have the option to pay your taxes and insurances for your home directly as opposed to including them in your monthly payments. Another plus to a conventional loans is the speedy process. With this type of loan you will not have to go through the approval process that government secured loans must go through.
Cons- Conventional loans usually require a much higher down payment. You should expect to put around 20% down. Another thing to consider is that you cannot roll closing costs and fees into a conventional loan. These fees must be paid at the time of the closing.
Types of Government loans and the pros and cons of those loans:
An FHA loan is a type of loan insured by the Federal Housing Administration.
Pros- It is easier to get an FHA loan with previous credit discrepancies and you also have the possibility of a lower down payment. Another great perk is that this can become an assumable loan. If you found someone interested in buying your home in the future, they could just assume your existing loan.
Cons-FHA loans can be subjected to an upfront mortgage insurance premium, additional fees for closing the loan and must be occupied by the owner of the loan. If you are looking for investment properties to rent out, an FHA loan will not work for you.
A USDA loan or a Rural Housing Loan is a loan overseen by the United States department of agriculture and is available to lower income individuals.
Pros- No down payment is required on an USDA loan and it is exempt from private mortgage insurance. This type of loan is more forgiving to lower credit scores and helps people with income limitation find affordable properties that they can manage on their current salaries.
Cons- You cannot use this type of loan to acquire additional properties or to buy manufactured homes. You will be restricted to search in certain areas that will qualify for an USDA loan and there are salary limitations for this loan.
A VA loan is designed for military families and qualify for 100% financing through the Department of Veteran Affairs.
Pros- A VA loan requires little to no down payment for a home and there is no PMI (private mortgage insurance). Also, more people can qualify for this type of loan who have severe discrepancies on their credit within the last few years.
Cons- The Department of Veteran Affairs puts a limit on the loan amount you may receive and no one can be on that loan with you unless they are a spouse or another veteran. VA loans also require a mandatory funding fee may be rolled into the loan if you choose to do so. Another con is that you may not use this type of loan to buy investment properties or second homes.
For more information on types of loans or to be put in contact with one of our preferred lenders, please call me today at 803-348-1155.
My name is Dena Mixon and I would love to be your Lexington, SC REALTOR! I am professionally trained and experienced to help home buyers and home sellers in the Midlands of South Carolina. I work very hard to help clients achieve their real estate goals. I can promise that I will always give you the care and best possible service that I can give! Whether you are selling, buying or just have a question, please call or text me at (803)348-1155. EXIT Real Estate Consultants.