Buying a home is a major life decision. Most people resort to mortgage loans when considering a real estate purchase.
Here are the most common types of residential home loans:
A conventional loan, unlike an FHA or VA loan, isn’t federal government-backed. In other words, the government doesn’t guarantee or insure the loan’s performance. The guidelines for this loan is set by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). These loans can be availed by all citizens; however, qualifying for the same can be quite difficult, especially when compared to FHA and VA loans.
An FHA loan is a more secured loan vehicle, from the lender’s perspective. If the borrower defaults with the payments, the FHA then has to clear the lender’s dues. As a result, lenders are more forthcoming with FHA loans, willing to offer attractive terms to borrowers – including low down payment, and low financing and closing expenses. The down payment can be as small as 3.5 percent of the total loan sum. Also, the seller’s contribution to closing costs is comparatively high at 6 percent.
The VA loan, as the name indicates, has the backing of the Veterans Administration. This loan can only be accessed by specific borrower groups via VA-approved lenders. Again, the VA offers to clear the lenders outstanding loan amount in case the borrower fails to oblige. A VA loan is more of a niche setup since it is available only to a current American armed forces’ member, national guard member or reservist, veteran, and the spouse of a deceased armed forces personnel.
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