What Type of Loan Should I ask for?
As you are starting your home search one of the 1st questions you should be asking is how am I going to pay for a house? If I need a home loan what type of home loan I am going to need? There are a lot of different types and they all have different innuendos that go with them. From the condition of the home to how much money you need to put down, you need to have a pretty good idea of what you’re going to need before you really start putting the house together.
Today we are going to look at the basics of what is available. There are many choices within an individual loan that a lender can help you with but I am just going to cover the basics and point you in the direction to do some research. I am also going to mostly address stick built homes today as Manufactured homes/ condos and vacant land all have their own special issues. Some of these loans will do those properties but the rules and stipulations will probably be different.
So Starting with zero down and working our way up!
Your zero down loans
Direct USDA loan (you income qualify for this loan) and it’s a government subsidized loan. This is a loan for folks that are on a limited fixed income. You apply for this loan directly thru the USDA office. They are usually on a budget just fyi so they can approve you and be out of money by the time you find a house. This loan will not do a fixer upper at all. House needs to be in good condition and move in ready. One of the stickers of this loan is that you will be subsidized by the USDA so when you sell your home you will owe the subsidized portion back to the USDA. If you keep it to the end of term and beyond they tack that subsidized difference to the end of your loan and you will eventually own the home free and clear. This loan does not do manufactured homes either.
Rural development Loans: This is a loan that is related to the USDA Loan but you can apply for this loan at your local bank or contact me and I can refer you to a lender that excels at these loans. They also income qualify but are more lenient than the USDA direct. They also will not do a fixer-upper that is not considered livable. That includes flooring, cabinets, fixtures, heat source that works. It could need updating but so much that it does not look like you could safely occupy it. This loan has a higher closing cost fee than some of the others as you are paying for the opportunity to have a zero down loan. It also will not do a manufactured home. This home is also restricted to certain towns /population areas that qualify. Right now that is Rathdrum, Post Falls, Spirit Lake, Athol and heading North.
VA Loan (Veterans Administration) Must have been in the Military and have your VA certificate for this loan. Most of my lenders can help you get your certificate if you don’t have it. So don’t worry about chasing that down prior to talking to them. You may come in and pay some of your closing costs on this one if you want. There are some fees that VA won’t let you pay. Those are required for the seller to pay. The typical VA loan requires a home that is in good condition, they will also do manufactured homes and they will do manufactured homes that have been moved more than once. They are pretty strict on the condition of the home although my special VA lender has told me that they have a VA rehab loan. If that is something you are interested in contact me and I will put you in touch with that special lender that knows how to do those.
Idaho Housing Down Payment Assist: This loan is very similar to what we are going to be discussing when we get to FHA loans except your down payment comes as a gift. I believe it’s a $5000 gift that you don’t have to pay back but don’t quote me on that every situation is different. It also has income limits but is more generous than some of the other loans. I have a couple of lenders that excel at these loans I am happy to put you in contact with. You can buy in the more populated areas so this is a good option if your planning on being in Coeur d Alene and need a zero or low down loan. Once again it’s a HUD loan and the house will have to be in livable condition. Can need updating but won’t be able to have any peeling paint, missing flooring, missing anything else and a heat source. Check out the HUD minimum standards here for the house requirements.
Some Down Payment Necessary
FHA Loans: This does have income and loan size limits but fairly generous to our area. You are required to have 3 ½ percent of the total sales price as a down payment. There is PMI insurance that you will pay on the loan until you have at least 20% equity in your purchase. Usually takes you 8-10 years to get to that point if all you pay is minimum payment. This loan is a good option to get you started. This loan will do primary residence, will also do a duplex or a tri-plex that you will owner occupy. My young starting out homeowners heads up on that one. Have had quite a few first time homeowners come in and buy a duplex live in one half of it for a year or 2 to meet the occupancy limit and then move forward and have a home basically for free while someone else makes the payment. Once you have received rent for a year on the other side it counts as income as you are moving up into another home. Great way to start out with an investment property while your young. This loan will also do manufactured homes that are real property as long as they meet all of the other requirements. Home conditions are similar to above and follow HUD Minimum Standards. No major fixers no peeling paint, missing flooring etc. There is a rehab loan version of this loan so when you see on a house it qualifies for a 203k rehab this is the basis of where you should head. For a Rehab loan contact me and I will put you in contact with a lender that specializes in those loans. They are challenging!
Conventional Loan: Available on just about everything as long as it has a certificate of occupancy. Conventional loans have no PMI insurance. Different lenders run different deals on these at times and your credit score sometimes dictates which ones you can qualify for. And there are many variations of a conventional loan depending on your needs; From a jumbo loan, construction loan, to some low down payment loans. I have seen them as low as 5% down for certain credit scores all the way up to 20% down. You can usually buy a fixer on one of these loans although; the banks are getting a little picker, on the condition. You can buy a manufactured home with them I don’t think you will get the 5% down with one of them though just FYI.
Now, that you have a rough overview of the main options that are out there. There are much more but these are the more common loans that get used on a regular basis in our area. If you have a special need, by all means, contact me. I have lenders that I team up with that can do a variety of interesting things. One thing I have learned in my years of doing Real Estate if there is a will there is away. So don’t ever think your situation is too unique. We can usually find a way. Might not always be pretty but usually can be done.
Hope this piece has given you some hope and some information on some of the process. You want to put a trip to the lender on your list as early as possible. It’s kind of like going in for a checkup. Get your credit pulled to make sure there are no surprises. Figure out what you income qualify for and decide way before you see that dream house what your budget is and how you’re going to pay for that home. Be comfortable with the payment and the terms. With Knowledge, you are armed to make that decision when you see the perfect home.