After going through the challenging and stressful process of finding the right home, your next task is to secure the right mortgage. Purchasing a home isn’t a simple ordeal due to its high cost and legal prerequisites. Depending on your financial credibility and credit score, some loan options may be a better deal for you than others. This is why it’s necessary to have an overview of your potential prospects.
Looking at Your Home Loan Options
Aspiring homeowners can shop for several mortgage loans to finance their purchase of a real estate property. Since people have different financial circumstances, some loans may be more beneficial for you than others. Additionally, your credit score will play a considerable role in how favorable your rates will be.
If you don’t know what your mortgage options are, here are four home loan types you should consider:
- Fixed-rate conventional loan. Most homeowners prefer a fixed-rate conventional mortgage since it offers the most straightforward plan, especially for residential properties. Since it’s a conventional home loan, you need to qualify under debt-to-income ratio and credit score prerequisites. You should have at least 620 points with your DTI ratio being equal to or less than 50%. Although it’s recommended to drop a 20% down payment for conventional loans, you may opt to pay as low as 3%. However, doing so requires you to pay Private Mortgage Insurance (PMI), which can be a more costly expense in the long term. Thankfully, you can cancel your PMI after reaching 20% with your home’s repayments.
- USDA Loan. As a government-backed mortgage, the USDA loan offers less risk to lenders who don’t have a great financial and credit history. However, not all applicants and homes can qualify for a USDA home. Although you can buy a home without a down payment or PMI, you instead have to pay a guarantee fee. Since the USDA loan mainly applies to rural or suburban areas, you must first check if your prospective home qualifies with the USDA’s standards. Additionally, your income must fit within the range of eligibility through the USDA income eligibility calculator. Besides the financial requirements, you must also confirm the home you’re buying will be your primary residence. This prevents you from using it for investment properties or vacation real estate.
- VA loan. A VA loan is a government-backed loan, but you can still shop for different lenders in the market as long as you qualify for it. It allows you to buy a property while waiving the down payment and PMI requirements. Like a USDA loan, you have to confirm that the property will be your primary residence. The service requirements for applying for a VA home loan requires you to have served:
- 90 consecutive days in the military duty during wartime
- 181 consecutive days in the military during peacetime
- As an active member in the National Guard or Reserves for 6 years or longer
Many people have the misconception that VA loans only apply to veterans and current members of the military. In reality, VA loans also apply to surviving spouses as well.
- FHA loan. As a mortgage product insured by the Federal Housing Administration, FHA loans come with excellent rates and terms. If your credit score is less than ideal, an FHA loan may be the best way to take the next step on the journey of homeownership. Interest rates are affordable and down payments for homes in Detroit, Royal Oak, and other Michigan areas are as low as 3.5%. Whether you are buying your first home or your third, you can qualify for a FHA mortgage. Simply ensure that you have a credit score that is above 500 or 580 for down payments of 10% and 3.5%, respectively. You should also have a debt-to-income ratio of no greater than 45%. Applicants must also have documentation to prove they have steady employment and are purchasing a primary residence. If you meet these requirements, a Michigan FHA mortgage could be for you!
Home Buying in Michigan with The Mortgage City
Unless you’re rich enough to pay for your property upfront, it’s best to consider the ideal loan option for your financial needs. Thankfully, you can connect with local experts to give you a better view of the choices available in your local market.
If you’re buying a house in Michigan City, our loan officers can give you the expert advice you need. Whether it’s your first time purchasing real estate or refinancing your current mortgage, we can develop a mortgage plan that’s agreeable to your financial situation. Call us now at (248) 930-8709 today!