Getting a home loan can seem like a daunting process. For a first-time home buyer in IL, all of the options can become confusing. However, once you know the differences and understand the qualification requirements, getting a home loan can be quick and easy. Learn about the different types of loans in our latest blog post!
5 Different Types of Loans You Can Use:
FHA loans are a popular choice among recent college grads, and people just starting out in the real estate world. They are appealing because they only require 3.5% down as opposed to a conventional loan which requires 20%. You must meet certain requirements such as having a credit score over 580. If your score is lower, you can still be eligible for an FHA loan, you will just need to make a higher down payment. You will also need to have 2 lines of credit, open and in good standing.
As far as the property, it needs to be used as your primary residence. It will be subject to an inspection by your lender.
Fixed Rate Mortgage:
Fixed-Rate Mortgages are the most popular type of home loan available. Typically a 20% down payment is required. A fixed-rate mortgage means your payment will be the same every month. This makes things easy, and lets you plan accordingly. However, if rates drop, you will be stuck at your old rate. You can always refinance, but that will cost you as well.
A fixed rate mortgage requires that you have 3 open lines of credit, all in good standing. There are also income, and credit requirements that will need to be met.
Adjustable Rate Mortgage:
An adjustable rate mortgage is a bit riskier as your interest rate will change when the market fluctuates. These loans are great for people with some buying and selling experience. First-time buyers might want to steer clear as these loans can be a lot more involved.
VA Loans are given to Veterans and active duty members of the US Armed Forces. Members of the National Guard may also qualify once they have served for 6 years. In addition, widows of Veterans may also qualify if their partner lost their life while serving.
VA Loans offer a ton of benefits including:
- Zero down payment
- Appraisal and closing fees are regulated
- Lenders do not charge private mortgage insurance or PMI
- You will need to pay a 1-time funding fee of 2% which you can finance it into the loan. Eligible borrowers can borrow up to 103.15% of the sales price or reasonable value of the home.
THE USDA offers mortgages in rural areas of the United States. Before you dismiss this, take note that over 95% of US is eligible. These loans require zero down and have low insurance rates. You must have great credit to apply and there are strict income limits. A 4 member household cannot exceed $75,650 per yer. (And no single person can have income exceeding $49,900 per year.)
When you begin shopping for your Chicago home, you should be aware of all of the resources available to you. There are grants, down payment assistance and government sponsored resources that can help you become a homeowner right now! The process does not need to be as overwhelming as people make it out to be! Once you know what is out there, you can take steps to reach your goals!