For the most part there are two main loan options: Conventional or FHA.
Conventional loans:
There are conventional loan options for single family properties with down payments as low as 3% or 5% depending upon what you qualify for. In the past, a conventional loan was typically 20% but there are now a lot more options available to buyers which makes home buying a much more viable option for a lot of people! Conventional loans require higher credit scores & lower debt to income ratios. Most lenders can get a conventional loan closed within 30 days following a signed Purchase & Sales Agreement (contract to purchase a home). Note that if you’re buying a multi family property, a conventional loan will require 20-25% down payment.
FHA (Federal Housing Authority):
These are government backed loans with a minimum down payment of 3.5% for single family or multi family properties (up to 4 units) that will be owner occupied (key phrase–you must plan to live in the house as your primary residence for at least one year).
FHA loans are available to anyone–not just first time buyers– and are easier for people to qualify for because they allow for lower credit scores and higher debt to income ratios. That’s the plus side. The downside is that you have to pay PMI (Private Mortgage Insurance) for the life of the loan. That cost is wrapped into the loan but important to understand. That said, it is deductible on your taxes & PMI is relatively low. The amount of PMI you pay will be dictated by your credit score.
Note that FHA loans won’t work for every property—FHA approved appraisers will inspect the property as required by your lender & they’ll flag things such as peeling paint, asbestos wrapped pipes, old wiring like Knob & Tube, & a few other issues that I’ll be able to identify as we check out properties. If the seller won’t remediate those issues then you won’t be able to get the loan. Are there ways around this? Yes. Case by case & I’ll be able to help you identify what properties just won’t work & which ones will (yes, there is a renovation loan called a 203k but that’s too much info for this post!). There aren’t many condos that qualify for FHA loans in our area.
This is a quick primer & since I’m not a mortgage expert there is definitely more info that you should know. The lender(s) I will connect you to will help you to understand your financing options & determine which loan package is best for you. A lender will want you to submit all of your information to them & then they will go over your options with you–not the other way around.
What will they ask for in order to give you a preapproval: past two years tax returns, last two or three months bank statements for all accounts, past two or three pay stubs, & they’ll run a soft credit pull.
This is a lot of info & a lot to take in–I do my best to provide my clients with different ways to learn about the home buying process so that they feel fully informed & empowered to make ask the right questions + make smart decisions! I’m here to help & to answer questions so take it one step at a time & don’t hesitate to reach out to me with additional questions!
Check out my video below to learn about the costs you should be saving–you’ll need more than just your down payment.