Traditional and Non-Traditional Financing Options

Traditional and Non Traditional

When considering buying a home buyers have a myriad of options in regards to financing both traditional and non-traditional. Here are some break downs in financing options when buying a home:

Traditional Financing

Conventional Loan – Is a loan that is not guaranteed by the government. Borrowers who have less than 20% of a down payment will need to pay for private insurance for the loan.  Conventional loans are less restrictive than government loans and have a higher purchase cap than some of the government loans below.

FHA Loan – The Federal Housing Administration program is managed by HUD (Housing and Urban Development) these loans are guaranteed by the government and are for a myriad of home buyers. These are very common for first time home buyers due to the ability to put much less money down against a home. However, due to the low down payment amount the borrower will need to carry insurance against the loan. In addition, FHA’s are usually easier to get approval for due to lower requirements on credit than for conventional loans. However, the loan amounts are limited and homes must meet strict FHA restrictions.

USDA Loan – The United State Department of Agriculture loans are for rural borrowers. This is managed through Rural Housing Services. A buyers’ income must be no higher than 115% of the adjusted area median income.  These homes must qualify for the USDA loan and are typically in more rural areas.

VA Loan – VA loans are for veterans of the United State who served their county. They are backed and guaranteed by the United State Department of Veteran Affairs.  VA loans offer 100% financing, meaning VA borrowers do not need a down payment in order to obtain a home. Veterans must meet specific requirements to be eligible (click here for the requirements: VA Requirements). For a VA loan the buyer must be using their home as a primary residence.

Non-Traditional Financing

Owner Will Carry –  Owner will carry financing occurs when the owner of the property will carry the loan amount for the buyer instead of the buyer obtaining a loan (through one of the above mentioned ways). This is useful for those who have poor credit but have a hefty down payment. Typically owner will carry loans will require 20% – 50% down. The terms are typically 5%  – 15% interest and the loans are short term (2 – 6 years). These loans work well for people who are in the midst of improving their credit. They can purchase the property as an owner will carry than obtain a more traditional loan as the owner will carry terms end.

Rent to Own Option – This option allows buyers to rent the property from the owner and hold an option to purchase. Many times the rent payments will be used as a building down payment towards the purchase. Sometimes the seller will require a down payment upon entering the contract as a good faith payment.

If you are looking for a home feel free to contact us. We would love to help you find your dream home no matter what type of financing.

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