Buying A Home

Financing Options for Buying a House

Buying a house will be one of the most important investments you will ever make in your life. Not only will it give you some financial standing in the future but it also extends additional benefits like tax cuts and forced savings. As a first time home owner, the actual process of buying a house can be a little overwhelming if you do not know the way the market works.

One of the most important decisions you will have to take are in regards to your financing options for buying the house. You should go over all the options and pick the one that suits your circumstances and needs the best.

Types of financing options…

  1. Conventional Loans
    A conventional loan is considered to be one of the toughest types to secure because of the prerequisites that borrowers have to fulfill before. Majority of the times, conventional loans come with a fixed rate of interest, require a larger percentage of down payment to be given and dictate that borrowers need to have a high credit score to obtain one.Conventional loans are not insured by the government or any other federal agency which means that most lenders will want you to have Private Mortgage Insurance (PMI).
  2. Federal Housing Administration Loans
    FHA loans are given on part of the US Department of Housing and Urban Development. They are advised for first time home owners because you will not have to give a large sum of money as down payment –you can get away with paying as little as 3.5 percent of the total purchase price of the house. Additionally, FHA loans are not so rigid when it comes to credit score requirements and will often have low upfront costs. However, FHA loans can be obtained within the statutory limit. Borrowers cannot go above that limit which can be restrictive.
  3. Veterans Affairs Loans
    If you are a veteran, you are in luck because VA loans are designed especially for you. I majority of the cases, VA loans have great terms because they can allow you to buy a house without the need for making down payments, have a lower rate of interest and don’t care too much about credit scores. All you have to do in order to obtain a VA loan is to apply for it and the office of VA will accept it and issue you a certificate.

Other factors to consider…

  1. Private Mortgage Insurance
    As a first time owner, if you have a bad credit score then most lenders will force you to opt for PMI in order to reduce the risk as much as possible. Try staying away from PMI because it will only increase the cost of buying a house. Instead, opt for home equity financing or a second mortgage.
  2. Debt Service Coverage Ratio
    DSCR determines your ability to pay back what you have owned, As such, it is always important to have a steady source of income, savings and a good credit score so that you are able to go though the process of buying a home swiftly.
  3. Floating Interest Rate
    Floating rates of interest usually fluctuate a lot. So while at one point you are able to benefit from a lower rate of interest, in a matter of minutes the entire environment could change. You may find that you are unable to keep up with the increased rates and default on your mortgage.
  4. Fixed Interest Rate
    Having a fixed rate of interest would mean that it stays constant no matter the trends in the real estate market. Every month, you will know the amount of money that will leave your pocket and you will be able to plan your life with certainty.