With seven million homes sold each year in the US, it’s clear that Americans love moving. Whether it’s across town or across the country, people can’t seem to sit still.
And with a wave of workers who can now work remotely, the option of moving to a new location, while retaining their job, means that people are fleeing large, expensive cities for more friendly, affordable communities.
But everyone’s situation is different. From the business owner to the freelancer, different people require different types of mortgage loans. And luckily, in 2022, there are many mortgage options to choose from.
Almost anyone interested in buying a house has the option to, as long as they are willing to get creative. One such way is seller carry back mortgages which are gaining in popularity as an alternative to traditional mortgages. Learn the basics of seller carrybacks: what you need to know after reading this article to see if this alternative is right for you.
What are the most common ways of financing a home? Read on below to find out now.
Conventional Home Mortgage
The conventional mortgage has been the most popular type of financing for decades. For those with a normal, easy-to-understand work history and stable finances, this is still the best option.
So how does a mortgage work? In the past, conventional mortgages have always required a 20% down payment. But today, lenders are a bit more flexible, allowing conventional borrowers to pay as little as 5% to 10% down instead of the full 20.
These loans have low-interest rates, the option of 15 or 30-year schedules, and the lowest fees. They are also the fastest to apply for and the fastest to close since the process is relatively streamlined.
But to get one, you need to have a stable, two-year minimum work history that you can document on at least two tax returns.
Those who have recently changed jobs or industries, or own their own business, will struggle to get a conventional mortgage.
You’ll also want to have a fairly good credit score and as much cash as possible for adown payment. 20% is ideal so that you can avoid paying private mortgage insurance (PMI).
The FHA home mortgage program is one of the best ways of buying a home in 2022. These loans make it possible for borrowers with less-than-perfect financial situations to get a home loan.
While these are geared to first-time buyers, they aren’t limited to that. They are primarily geared for those who don’t have a lot of money upfront.
Down payment requirements are as low as 3.5%. So on a $300,000 house, you’d only need $10,500 plus closing costs, which you might be able to wrap into the loan as well.
The FHA program allows the down payment funds to be gifted by a family member, friend, or charity.
FHA loans are also available to those with lower credit scores, due to a lack of credit history or previous financial trouble. Interest rates are low on FHA loans, but you’ll need to pay PMI when putting less than 20% down.
VA loans are guaranteed by the Department of Veteran’s Affairs. They don’t give the loans out, they just guarantee them. So you’ll still work with banks and mortgage lenders such as CalVet home loans for the actual loan.
To qualify for a VA loan, you need to be active service in the military or a veteran who was honorably discharged. There are minimum timeframes required for service to qualify. If you are the surviving spouse of a veteran, you may qualify as well.
VA mortgage loans are the only programs that allow borrowers to buy a house with 0% down. All that is required is some cash for the closing costs, some of which can be wrapped into the loan.
You’ll need to live in the property you are purchasing, and you can only have one VA loan at a time. Though, if you’d like to earn rental income, you can use a VA loan to purchase a multi-unit property, up to four units, renting out three while living in one.
There are a few construction mortgages available as well. These will finance the purchase of land, and the process of building a home from start to finish.
Typically, loans are two parts. The first part is the construction process, which is a short-term loan with a higher interest rate. Once construction is complete, you’ll get a long-term loan, which is essentially a regular mortgage.
Certain contribution mortgage programs combine these two loans together so that you only need to pay closing costs once.
There are also remodeling loans available. With these, you use them to buy an existing home. But you receive extra funds that allow you to make improvements to the property right away, since as a new kitchen, a new roof, or home addition.
Refinance programs are available for those looking to get a new loan on their current property. There are a few reasons to refinance.
Many people will perform a cash-out refinance, where they pull out some of the equity they have to use for a new property, home upgrades, or other expenses.
Others will refinance to take advantage of lower interest rates or to lower their monthly payments.
Home Equity Loans
Home equity loans function as a second mortgage. These loans are placed on top of your original mortgage. They allow you to borrow against your home equity without having to replace your original mortgage.
A home equity loan lets you pull out a chunk of your equity in one lump sum. You’ll start making equal monthly payments right away until the loan is paid in full.
Another option is a home equity line of credit (HELOC). These are essentially credit cards for your home equity. You only have to pay back what you spend. And after you pay it back, you can spend again and again.
They typically have a temporary draw period of 10 years. At this time, you can no longer borrow and will make monthly payments until it’s all paid off.
Which Types of Mortgage Loans Should You Consider?
There are many different types of mortgage loans for different borrowers. Not everyone can qualify for a conventional mortgage, due to many reasons.
If you can qualify for conventional, going that route is the best option. But if not, there are plenty of other options to try. Remember, there are lenders out there who will help you find a loan, no matter what. So don’t give up until you buy a house.
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