The Pros & Cons for Different Types of Home Loans

If you’ve looked into getting a mortgage lately, you may have been left scratching your head, mulling over the different types of home loans available.

We see it every day. Soon-to-be buyers eagerly start the process, only to grow confused over their financing. Not on our watch!

In this blog, we’re sharing the four major types of mortgages, along with the pros & cons of each. It’s important to us that you know your mortgage options so that you can set yourself up for financial success down the road.

By the end, you should have a clearer understanding of your mortgage options, as well as an idea of which loan can work best for you.

The Conventional Home Loan

Conventional home loans are the most common type of mortgage in the country. The federal government doesn’t back these loans, and they are divided into two categories: conforming & nonconforming.

If Fannie Mae or Freddie Mac can purchase the loan, then it’s conforming. By contrast, nonconforming loans aren’t able to be purchased by either Fannie Mae or Freddie Mac.

Conventional loans offer specific advantages for borrowers, such as:

• Lower interest rates
• Fewer fees & penalties
• May purchase a second home and investment properties
• Gift funds are allowed for closing costs
• No income or location restrictions
• A minimum credit score of 620

While these popular loans offer many advantages, they do have drawbacks to keep in mind:

• Potentially stricter credit score & income requirements
• Private mortgage insurance (PMI) is based on your credit score and down payment size
• Second homes and vacation properties require a 10% down payment
• 2 – 4 unit properties require a 25% down payment
• For investors, you can hold up to 10 loans at a time with certain requirements

Is a Conventional home loan right for you, or are you someone who wants a bit more flexibility during the approval process?

Let’s explore different types of government-backed home loans and offer different approval requirements so that you can make an informed choice.

The Federal Housing Authority (FHA) Home Loan

An FHA-backed mortgage is a smart way to lower your barriers to homeownership. Why is this? FHA home loans are designed to offer more relaxed approval requirements, among other advantages:

• A low down payment minimum of 3.5%
• Less stringent credit score requirements (see your loan officer for details)
• No first-time home buyer requirement
• All forms of gift funds are allowed
• No income restrictions
• 2-4 units can be purchased without additional down payment requirements
• No purchase price or location restrictions

As for reasons to think twice about an FHA-backed mortgage? Take a look to see if any of these are deal-breakers:

• Only one FHA mortgage may be borrowed at a time
• Your mortgage insurance premium (1.75% of the loan) is due up front, but the amount is typically rolled into the overall loan
• Second homes, investment, and vacation properties aren’t allowed
• Certain homes don’t qualify if they need certain structural renovations

These are things to consider when choosing a mortgage that will help you reach your financial goals. Most importantly, speak with your loan officer about eligibility requirements to ensure that you are likely to qualify.

Next, we’ll dive into home loans that offer huge benefits for our nation’s bravest.

The Veterans Administration (VA) Home Loan

The VA offers government-guaranteed loans that move veterans closer to their homeownership goals. The benefits of borrowing a VA home loan are extensive. Here’s a sample of what makes a VA-backed mortgage so attractive to those who qualify.

Speaking of qualifying for a VA loan, here’s who’s eligible:

• Active Duty Service Members
• Veterans
• National Guard
• Reserves
• Surviving Spouses

If you have any questions about your eligibility, speak with your loan officer.

Now for the fun part—what makes a VA home loan so unique? See for yourself:

• No down payment
• No prepayment penalties
• Sellers can pay all of the closing costs
• No private mortgage insurance
• No escrow fees
• No attorney fees besides title work
• No FHA/HUD inspection fees (except if you are building a new home)
• The loan can be used multiple times which means your VA benefit doesn’t disappear once you apply for a VA mortgage
• If you are deployed, you can finance a primary residence provided your spouse lives there

As for the potential downsides, these are a few to consider:

• You are unable to purchase second, investment, or vacation properties
• Fees will increase multiple times with each subsequent use of the VA home loan

There’s much to love about the VA home loan. If you meet the eligibility standards, get in touch to see how much easier owning a home can be with this one-of-a-kind mortgage product.

Let’s wrap things up with a home loan designed for a quieter side of life.

The United States Department of Agriculture (USDA) Home Loan

A USDA home loan is meant to help finance properties in less densely populated areas. If you’re looking for a more relaxed style of living, or maybe you need extra space to farm or run your business, a USDA-backed loan could work for you.

Here are the many benefits of borrowing a USDA home loan:

• No down payment
• 100% financing
• Closing costs may also be financed
• No purchase limit
• 30-year fixed rates
• Income limits may apply
• Flexible credit score requirements
• No limit on the purchase price
• Gift funds can be applied to purchase and closing costs

Outside the Camp Hill and Harrisburg area, Pennsylvania offers bountiful locations eligible for a USDA home loan.

Nothing is perfect however, so consider these factors when ditching the city life for a house in the country:

• Location guidelines may restrict your home search
• Second homes, investment properties, and vacation homes aren’t eligible for financing
• Income requirements apply

With so much of Pennsylvania’s geography suited for a USDA home loan, it’s a good time to check the updated eligibility map and income guidelines.

Ready to get moving? We’re ready to help.

We have a passion for connecting people with different home loans that move them closer to buying a property.

You have no shortage of options available to you when buying a home, especially in the Harrisburg area. If you need help finding the right mortgage for you, we’re here to guide you with professional resources that put you first. Contact us to see what you’re qualified for, and we’ll get you moving.