We have all heard about the four most used loan options most people qualify for. Typically they're Conventional, Fha, USDA or VA loans. These loans however have different aspects and types that many may not be familiar with and for those looking to make a savvy purchase that will have some equity come from it, listen up.
The Federal Housing Administration, also known as Fha is a government agency created as part of the National Housing Act of 1934. Fha loans are typically provided to low to moderate income families that may not meet the credit or income criteria for a typical conventional mortgage loan offered by their own banks. Fha loans usually are easier to qualify for, with lower credit scores needed, and lower down payments required on a home purchase.
Fha offers several different types of loans that can be of benefit to different people in different stages of their life. For the young, middle aged/empty nester or elderly. In most cases new home buyers will be looking at the 203B Fha loan which offers a low 3.5% down payment, closing costs can be included in the loan, and flexible credit criteria. This is a great option for those just starting out but is also a one size fits all loan most anyone can benefit from. Another lesser known type of Fha loan is called the 203k rehab loan.
The 203k rehab loan is offered in two ways, one is called the 203k streamline loan the other is the 203 full loan. Both are well suited for those that are interested or willing to purchase homes that need mild to substantial renovations. The benefit of these types of loans is you find the home, it can be a foreclosure, or a home that has fallen into a state of disrepair, and the 203k loan will cover the costs of the renovation up to a percentage. There are certain criteria that must be met depending on which loan you go with. Both require the homeowner to get a bid from a licensed contractor to do the work needed.
Once this bid is turned in, the loan amount for the repairs is placed into an escrow account. This will add to the purchase price, and amount financed but, in the end you have a home that has been renovated to your needs. USDA loans require no money down and can be cheaper overall than a FHA. However not every home is located in an area that qualifies for USDA loans. The bottom line is do your research to find out which loan may work for you.
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