When you’re buying a home, understanding the types of real estate loans available to you can make a big difference. There are so many options. That’s why it’s important to know which loan best suites your financial situation. Let’s break down the most common types of real estate loans. Use this guide so you can pick the one that fits you best.
FHA Loans: A Smart Choice for First-Time & Lower-Credit Buyers
Among the most popular types of real estate loans, FHA loans stand out. This is especially true for first-time homebuyers or those with lower credit scores. These loans, supported by the government, create easier access to homeownership.
- Low Down Payment: With an FHA loan, you might only need to put down 3.5%, making this type of real estate loan a great option if you’re working with limited savings.
- Credit-Friendly: Got a credit score of 580 or more? You’re in good shape for FHA financing. Even with a score as low as 500, you might qualify with a 10% down payment.
- Lower Interest Rates: FHA loans are frequently chosen over conventional loans due to their lower interest rates. This is why they are a preferred option among the various real estate loan types available.
- Mortgage Insurance: One catch—FHA loans require mortgage insurance to protect the lender if you can’t repay your loan.
If you’ve filed for bankruptcy, an FHA loan may still be an option, giving you another reason to consider this loan type.
USDA Loans: Perfect for Suburban & Rural Buyers
Another great choice among the types of real estate loans is the USDA loan, ideal for homebuyers in suburban or rural areas. USDA loans, backed by the U.S. Department of Agriculture, help make homeownership more attainable outside of big cities.
- No Down Payment: One of the best features of USDA loans is 100% financing, meaning you can buy a home without putting any money down.
- Lower Interest Rates: USDA loans usually have lower interest rates, so the monthly payments are more affordable than with other types of real estate loans.
- Credit Requirements: You’ll need a score of at least 640, but even with a few bumps in your credit history, USDA loans tend to be more forgiving than other options.
Like FHA loans, USDA loans have a small fee similar to mortgage insurance, but it’s typically less than what you’d pay with a conventional loan.
VA Loans: Supporting Veterans & Their Families
If you’re a veteran, active service member, or an eligible spouse, VA loans are one of the most advantageous types of real estate loans. These loans are supported by the Department of Veterans Affairs and offer plenty of benefits.
- No Down Payment: VA loans provide 100% financing, removing the requirement for a down payment and making homeownership easier to acheive.
- No PMI: Unlike many other types of real estate loans, VA loans don’t require Private Mortgage Insurance (PMI), which saves you money in the long run.
- Flexible Credit Requirements: While lenders generally prefer a score of 620 or higher, there’s no official minimum credit score for a VA loan, making it one of the most flexible types of real estate loans.
- Lower Closing Costs: VA loans also limit the amount lenders can charge for closing costs, which helps keep your home purchase more affordable.
Conventional Loans: A Flexible Option for Many Buyers
When discussing the main types of real estate loans, conventional loans are a top choice for buyers with solid credit and stable financial history.
These loans aren’t supported by the government. They are provided by private lenders such as banks or credit unions.
- Down Payment: While you can find conventional loans with down payments as low as 3%, putting down 20% means you can avoid paying for PMI, a big advantage compared to other types of real estate loans.
- Credit Score: Generally, conventional loans require a minimum credit score of 620, although a higher score could qualify you for better interest rates.
- More Options: Among the types of real estate loans, conventional loans offer the most flexibility—whether you want a fixed-rate mortgage, an adjustable-rate mortgage (ARM), or even a jumbo loan for higher-priced properties. Lending Tree outlines these different types of conventional loans and their differences.
Conventional loans also allow for higher loan limits. This is ideal for buyers looking at more expensive homes.
Why Working with a Real Estate Agent Helps
Navigating the different types of real estate loans can feel overwhelming, but a good real estate agent simplifies the process. Here’s how:
Expert Advice
A real estate agent will give you up-to-date info on the market and help you understand the pros and cons of each loan type.
Lender Connections
Many agents have relationships with trusted lenders who can offer better rates and terms on the different types of real estate loans.
Property Search
Once you’re preapproved, your agent will help you find homes just for your budget and loan criteria.
Work With Lauren Fours Properties to Secure Your Real Estate Loan
When it comes to choosing from the many types of real estate loans, having the right agent makes all the difference. Whether you’re looking at FHA loans for their accessibility, VA loans for veterans’ benefits, or USDA loans for buying in rural areas, Lauren Fours can help you navigate every option.
Lauren Fours Properties has the expertise to guide you through the homebuying process, from understanding the different types of real estate loans to securing the best financing for your dream home. Ready to get started? Contact Lauren today to take the next step toward homeownership!