Financing can be intimidating but it’s like any other decision you have to make; once you are educated you can make the right one. Loan guidelines have changed drastically over the past 5 years and banks are very careful who they lend money to. When choosing a loan, whether for a purchase or refinance, be sure to check all of your options first.

FHA – This acronym stands for Federal Housing Authority which is part of HUD (Housing and Urban Development). FHA loans are known to be ‘government backed loans.’  You can get this loan type from almost any lender. They are able to offer you better rates because the government is insuring it. FHA guidelines have always been more conservative than most others. FHA credit requirement is only 580 yet the lender’s requirements are typically in the 620 range. They require 3.5 percent down payment. This can be your own savings or a gift from someone. FHA loans are good for up to a 4 unit property. They will also finance mobile homes and modular homes. Those loan types are hard to find.

FHA 203K Loan – This loan is also an FHA loan but is used to rehab or repair properties.  First, the process starts with a feasibility study from an experienced 203K consultant. They decide what work needs to be done to the property in order for it to be livable. Next, estimates are done to put a price on that work. Last, the loan closes like any other loan and the rehab money is added to the loan amount. For example, if you purchase the home for $100,000 and need $50,000 worth of work done you will be getting a loan for $150,000. You are rolling the rehab money into the loan.

VA – This acronym stands for Veterans Affairs and is for military personnel. It is the most conservative of all loan types. It is also a government-backed loan, insured by the VA. It does not require any down payment at all. Securing a VA loan can be a lengthy process. It helps to work with an experienced VA loan officer.

Conventional – This used to be the most popular loan 3-5 years ago when the market was high and everyone was buying a home. Now the guidelines are similar to FHA loans, yet they require about 10 percent down. This is not as a popular a loan type anymore, but it can still good for the right situation. The credit requirement for a Conventional loan will be high, and the rate will be linked to the credit rating unlike FHA.

Be sure to learn all your options before committing to a loan. Getting your pre-qualification done before looking for a home can save you a lot of disappointment.  You need to make sure you know how much you are qualified for before looking so that you head out on the right path. Your loan officer will be able to explain your qualifications for each loan type.