It is important to understand all of your loan choices and figure out which one is the best fit for your situation. You should have an idea of the type of loan you want – also know the type of loan does not work with your financial situation.
Check out most the common mortgages below, along with a pro & con comparison and eligible properties for each loan type to help you determine which one is right for you.
Conventional loans are the most popular type of mortgage used today.
Some of the main advantages of conventional loans vs government loans such as FHA or USDA is that mortgage insurance (PMI) is cheaper. PMI is not required if you have at least 20% to put down, most lenders will require between 5%-10% down with a conventional loan. Conventional mortgages are also available for most any type of property. Unlike FHA loans, you can get a conventional loan on a second home or investment property.
Pros:
Loan amount up to $424,100
No up-front PMI
Most properties accepted
Mortgage insurance drops after LTV (loan to value) reaches 78%
Cheaper PMI than FHA
Conventional 97 loans is 3% down
Cons:
Higher credit score minimums (620-640 score required)
Down payment is higher than Government loans
Slightly higher rates than FHA
More difficult to qualify for
More strict income guidelines
Property Types:
A great benefit of conventional mortgage is that they are eligible for many types of properties:
Single Family Homes
New Construction Homes
Mobile Homes
Condos and townhomes
Rehab properties
Multi-unit properties
Planned unit developments (PUDs)
Government loans such as FHA and VA loans are available for owner occupied properties only. If you’re buying a second home or investment property you will need to get a conventional loan
An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). They are popular especially among first time home buyers because they allow down payments of 3.5% for credit scores of 580+. The biggest downside is that borrowers must pay mortgage insurance premiums, which protect the lender if a borrower defaults.
Because of FHA’s low down payments and small reserve requirements, along with options to roll your up-front mortgage insurance into the loan, many buyers find they can get into an FHA loan and onto the bliss to homeownership much more quickly than they can with other mortgages
Pros:
Relaxed credit requirements – 580+
Low down payment – 3.5%
Larger Income to Debt Ratios
Cons:
Mortgage insurance
Minimum property standards
Loan limits of $275,665 or less
Property Types:
Single Family Homes
New Construction Homes
Manufactured Homes
Multiplexs
Row houses
Condominium units
For most borrowers, the benefits of the FHA loan programs are still unbeatable by any other mortgages out there. The lower down payment needed and credit score requirements alone make it easy for first time and budget minded homebuyers to get into the Tucson real estate market.
As a Certified Military Relocation Specialist (CMRS), I’m thankful for all the veterans service in the United states, especially in Tucson. VA loans are flexible loans, which come with significant financial benefits, are at an all-time high in terms of average loan amount and guaranty amount.
FHA loans typically require a 3.5% minimum down payment, and for many conventional loans it’s a 5% minimum. On a $175,000 home purchase, that’s a $6,125 down payment for FHA, $8,750 for conventional, and $0 for VA
Pros:
No down payment
No mortgage insurance
Higher allowable debt to income
Cons:
Funding Fee – mandatory fee charged by the VA
Intended for primary residence
Property Types:
Single Family Homes
New Construction Homes
Manufactured Homes
Condominiums/townhouses
Modular Homes
Fun fact: The VA loan program was created in 1944 part of the original Servicemen’s Readjustment Act, better known as the GI Bill of Rights. This 70+ year old loan program has backed more than 20 million homes since World War II.
With the USDA Rural Development option, you can borrow 100% of the appraised value of an eligible home. This is great news for homebuyers: you don’t need to come up with the down payment! The main requirement for a USDA Rural Development mortgage is that the property must fall within certain geographical areas, outside the city limits of Tucson and qualify for the loan.
Pros:
No limit on seller contributions
Modular & manufactured homes may be eligible
No lot size restrictions
Gift funds allowed to cover closing costs
No pre-payment penalty
Good for purchase or refinance
Cons:
Geographic restrictions
Mortgage insurance included (may be financed into loan)
Income limits
Single family, owner occupied only – no duplex homes
Property Types:
Single Family Homes
Some Manufactured Homes
With comparable rates to FHA, lower mortgage insurance premiums and the option for 100 percent financing, USDA Rural Development loans make sense for many of today’s suburban home buyer. For more information on what homes qualify and in what area contact me today for a list of properties.
Now that you have a general idea of the different types of home mortgages in Tucson, find out what the next steps are for the home buying process.
If you’re looking at buying a home in the near future you need to know how much you qualify for, learn how to obtain a pre-approval letter or contact me today!