Real Talk: Your Options for Loans & Down Payments
Updated: Aug 6, 2021
Weren't born rich? Me neither. Check out our break down of the different types of loans out there to help you get into your home, and what they require in cash-money-honey, on your home buying journey.
The FHA loan program is a nifty lil tool that enables middle-to-lower income folks get into homes, and offsets the homeownership disparity. FHA loans are insured by the Federal Housing Administration, a government agency under the Department of Housing and Urban Development (HUD).
FHA loans can only be applied for through a FHA-approved lender. A FICO score of 580 is required to apply qualify for the low down payment advantage. The down payment advantage allows you to put as little as 3.5% down, as opposed to 20% in a conventional loan.
Although there are lower up front costs with an FHA loan, the FHA require mortgage insurance for these loans, which serves as protection for the lender if the borrower defaults. This also is an added monthly expense, and something to calculate in when reviewing your financing options on the journey.
Who's Qualified: Nearly everyone
Down Payment: 3.5%
Credit Score: 580+
Commonality: Very common
The Catch: Mortgage Insurance is an added cost.
Learn more about FHA Loans here!
Veterans Affairs loans, or VA loans, are available to military service members and their families under the U.S. Department of Veteran Affairs. The VA guarantees their loans, ensuring the lender is paid for any losses if the borrow defaults.
To qualify, borrowers need a valid Certificate of Eligibility (COE) along with suitable credit and sufficient income. By far, the most substantial thing a VA loan offers eligible borrowers is the ability to put 0% down. That means a fully financed loan, and you on your way to homeownership without paying anything up front.
Who's Qualified: Eligible military members and their families
Down Payment: 0%
Credit Score: Varies
The Catch: Not much! But you do have to qualify as a Vet.
Learn more about VA Loans here!
Conventional loans are, well, conventional! They're pretty typical and they're where the "20% down payment" requirement comes from. But you actually can qualify for a Conventional loan for less than 20% down - with insurance. Conventional loans aren't backed by the government, so lenders naturally incur more risk when working with conventional borrowers.
If you have very strong credit and low debt-to-income, a conventional loan may be the answer for you. With lenders typically taking 20% down payments, you will need some serious cash up front to purchase a home with a conventional loan in CA. You may be able to negotiate less than 20% up front, but would incur private mortgage insurance premiums as a result.
Who's Qualified: Financially strong individuals with liquid cash up front
Down Payment: Typically around 20%
Credit Score: Very strong
Commonality: Very Common
The Catch: Financial health is imperative to lock in lower interest rates
Learn more about Conventional 30-Year Loans here!
We know that money talk can be scary. Fortunately, there are even more options out there than the three common loans listed above. For more information, or to talk to a professional, give us a call at 562-966-1139. We can gladly put you in touch with screened lenders in the industry that can help you review your finances and work out the best plan to get you in your home!
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