Buying a home can feel like putting a puzzle together — finding the right neighborhood, the best house for your family, a price that fits in your budget. If one of the pieces doesn’t quite feel right, the others don’t seem to fit either. And when all those pieces do come together, there’s still the matter of financing.
Today, a buyer has more financing options than ever. Let’s take a closer look at what’s available to homeowners in 2022.
Conventional Mortgages
Conventional mortgages are home loans that private lenders fund — mortgage companies, banks, credit unions, and others. Not backed by any government agencies, conventional mortgages typically require a credit score in the high 600s and above.
Nerd Wallet explains a couple of the most popular conventional mortgages:
- A Fixed Rate mortgage has the same interest rate for the life of the loan — whether that’s 15 years or 30.
It’s a good fit if you’re looking for stability, you plan to stay put for the next five years or longer, and you like the idea of a fixed monthly payment for the life of your loan.
Looking for a lower monthly payment as well? The 30-year option may fit best. Besides offering a lower monthly payment, it also allows you to double or triple your payments and pay the loan down a lot faster.
- An Adjustable Rate mortgage has a lower rate at first and then adjusts on a time schedule set by the lender.
This mortgage may be for you if you don’t mind a bit of uncertainty, the idea of a lower initial monthly payment is appealing, or you don’t mind moving once the initial period wraps up — especially if the interest rate jumps higher than expected and your mortgage payment climbs with it.
Government-Backed Mortgages
Outside the box of conventional mortgages are loans guaranteed by government agencies.
- Federal Housing Administration (FHA) Loan
To protect lenders as they take financial risks, the Federal Housing Administration insures FHA loans. This means the government agency has a say in which financial institutions can offer FHA-approved loans and what requirements potential borrowers have to meet.
FHA loans are good for first-time home buyers, those whose credit score doesn’t quite meet the standard for other mortgages, and those who may not have the means to invest in a large down payment.
- United States Department of Agriculture (USDA) Loans
Like FHA loans, USDA loans are guaranteed by the government — specifically, the United States Department of Agriculture.
“A USDA loan is a mortgage that offers considerable benefits for those wishing to purchase a home in an eligible rural area…The loan’s purpose is to provide affordable homeownership opportunities to low-to-moderate income households to stimulate economic growth in rural and suburban communities throughout the United States.”
If your household is a low- to moderate-income family that’s interested in buying in a rural area but without a lot saved up for a down payment, a USDA loan may fit your needs.
- VA Loans
Loans provided by private lenders but backed by the Veterans Administration help active-duty service members, veterans, and widowed military spouses buy homes. Qualifications for a VA loan include that the applicant must be one of the following:
- A National Guard or Selected Reserve member with more than six years of service,
- An active-duty service member or veteran who’s been honorably discharged with 181 days of active service during peacetime or 90 active days during wartime, or
- The widow of a service member who died in the line of duty.
It’s a good fit if you meet the above qualifications and want to buy a home with no down payment required.
Jumbo Loans
The Federal Housing Finance Agency (FHFA) sets limits on conventional loans, and a jumbo loan exceeds those limits, allowing the borrower to finance a larger mortgage.
Have a good credit score, significant means for a large down payment, and the desire to buy in a more expensive area? A jumbo loan may be right for you.
What about cash offers?
The National Association of Realtors say cash offers started trending in 2021.
“Amidst the most competitive spring market in 50 years, the share of all-cash sales to existing-home sales surged to 25% in April 2021 as non-first time buyers are paying all cash to increase the competitiveness of their offers, edging out first-time buyers, according to the April 2021 Realtors® Confidence Index Survey.” – National Association of Realtors
Advantages of a Cash Offer
A cash offer is what it sounds like — a loan-free purchase of a home. One of the advantages of offering cash is a quicker turnaround because the seller doesn’t have to wonder whether the mortgage lender will approve a potential buyer’s loan application..
There are other advantages, too… like the amount of financial savings for all parties because there’ll be no need for credit checks, fees associated with loans, or other processing fees. A cash transaction is simpler and faster. Period.
Finding the Means To Pay in Cash
Many times those who pay in cash have received a financial gift, sold another home, or saved up over time. But if you’re someone who doesn’t have any of those means in hand, you may still be able to buy with cash.
In December, 2021, NPR highlighted a growing service for potential home buyers who want to get to the head of the line when putting in offers — businesses that purchase homes with cash for buyers who’ll then pay the business back. Be sure to get a professional opinion before purchasing a home this way.
What’s earnest money?
When you’ve found the house you want and you want the seller to know you’re serious about your plans to buy the home, you may offer earnest money — a good faith deposit that will later go toward closing costs or your down payment.
Your real estate agent can help you decide how much earnest money to offer. A general rule of thumb is between 1% and 3% of the price of the home, but if there are lots of interested buyers, up to 10% may be appropriate.
If you’re in the market for a new home, reach out to our team at Gaskill Realty where we can guide you to your best path to home ownership.
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