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Home Loans - Which One is Right for You

By Michael Balicki

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 loan

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)

  • Second homes
  • Investment properties

FHA Loan

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.

VA Loan

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.

USDA Loan

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!