Tucson Home Buyers- Different Types of Loans

When buying a home in Tucson, Sarah Ley can help you to understand the different types of mortgages available to you. Today’s home buyer has a lot of different options available, and many of those options will depend on your credit scores, the amount of money you have for a down payment, and whether or not the home will be owner occupied.

Conventional vs. Federally Insured Mortgages

Conventional and Federally Insured are the two main type of home mortgages available to most borrowers. Within each of these two main designations, there are many variations and differences. Before committing to any type of loan, make sure to read the fine print, as you will want to select a mortgage that has no pre-payment penalty or other restrictive conditions that may limit your option to re-finance in the future, if necessary.

Conventional Loans are offered by your local bank, mortgage broker, or credit union. Depending on your lending institution, F.I.C.O. scores, and debt to income ratio, your borrowing costs and the options and interest rates available to you will vary.

Understanding Down Payments and Private Mortgage Insurance

Due to the sub-prime mortgage meltdown, for all practical purposes, there is no longer 100% financing available to borrowers, except with VA Loans. Some traditional loans will now require a substantial down payment, which ranges from ten to twenty percent of the sales price. If you put less than 20% as a down payment, you will be required to pay PMI (Private Mortgage Insurance). credit, but may not have enough funds for a substantial down payment. Another advantage of this type of loan is that the entire amount of annual interest can be written off, whereas PMI cannot be. The good news (if you have to pay PMI) is that it is tax deductible. A conventional mortgage works best for borrowers who have at least 10% to put down on the home, as well as good credit scores. Conventional mortgages are also great for non-owner occupied, investment purchases, as federally insured loans apply only to owner occupied homes.

Federally Insured Government Loans are available to individuals who qualify under certain circumstances. In this instance, you take out the loan from your local bank, mortgage broker, or other lending institution and the loan is insured by the U.S. Department of Housing and Urban Development (HUD).

Federally Insured loans include:

• Federal Housing Administration (FHA) insured loans: These loans allow you to buy a home with as little as 3% down. Because the government is insuring your loan, it is usually easier to qualify for FHA financing.
• Veterans Administration (VA) guaranteed loans: you must be a veteran of the US armed forces to qualify.
• Farmers Home Administration (FmHA) loans: available to farmers in rural areas.