If you’re in the market to buy your first home, you might have noticed that the mortgage process can be complicated and confusing – especially if you’ve never bought a home before. Fortunately, there are many different loan options out there that can make the buying process easier, and they all vary in their requirements and eligibility criteria. Here are five of the easiest ways to get a loan for a new home, so you can finally get into your dream home!
See if you qualify for a VA loan Â
The first step is to see if you qualify for a VA loan. You can do this by visiting the Department of Veterans Affairs website. If you qualify, you’ll need to get a Certificate of Eligibility from the VA. You can do this by mail or online.
Once you have your certificate, you’ll need to find a lender who participates in the VA home loan program. Once you’ve found a lender, you’ll need to fill out an application and provide the lender with your certificate of eligibility.
There’s also an appraisal fee, which varies depending on where you live. Your lender will tell you how much it will cost upfront. Next, the bank reviews your paperwork and decides whether they want to lend you money or not.
They’ll look at how much money they’re willing to lend based on your income and credit score, among other things. But if they decide to lend you the money, then congratulations! You’re now in the process of buying a new home.
Consider an FHA loan
FHA loans are a great option for first-time homebuyers or anyone who doesn’t have 20% to put down on a home. They’re also more flexible when it comes to credit score requirements, and you can get approved with a FICO score as low as 580. Plus, there’s no need to pay for private mortgage insurance (PMI) with an FHA loan. PMI is an added cost that most people don’t know about until they start shopping around for their new home.
You can even use gift funds from family members or employers to cover the down payment and closing costs if you qualify. The only downside? An FHA loan has one of the higher interest rates in the industry: 4.25%. If you want to go this route, make sure your credit score is at least 620 before applying! In the meantime, here are four other ways to find a new home without breaking the bank.
1. Find out if you’re eligible for seller financing: One reason why some homeowners choose not to sell their homes is because they want to offer seller financing terms. Not all sellers will be willing to do this, but it never hurts to ask.
Many banks may be willing to offer what’s called soft or limited preapproval so you can see how much house you can afford based on your monthly income and debt load before submitting a full application with earnest money up front. These types of preapprovals often come with a subject to clause that protects both parties should the appraisal come back lower than expected.
2. Tap into your 401(k): More employers are letting employees borrow against their 401(k) retirement accounts through something called a 401(k) plan loan. The best part? These loans usually have lower interest rates than traditional mortgages. Keep in mind that you’ll need to repay them quickly — typically within five years — or risk taxes and penalties.
If possible, try to save up enough cash for a down payment instead of borrowing from your retirement account; otherwise, limit yourself to taking out no more than $50,000.
3. Consider a VA loan: A VA loan provides competitive interest rates without any extra fees or points charged by the lender — but it’s only available for military veterans.
That means you must have served at least six years active duty service and either currently serving, retired or discharged with a disability under honorable conditions. While VA loans might not be right for everyone, they’re worth looking into if you meet the qualifications. And hey, you might just be lucky enough to snag a loan with zero down and close to zero percent interest. Yes, really.
A non-traditional loan offered by a company called SoFi offers rates starting at 0.9% and can be used for down payments as small as 3%. But you’ll have to be well qualified to apply, with a minimum of 660 FICO score and 12 months’ worth of steady employment. There are many other options for those with less perfect credit, too.
Opt for a Homebuyer Assistance Program
Many state and local governments offer assistance programs to help with the down payment and/or closing costs. Some even offer low-interest loans. This is a great option if you qualify.
Look into a first-time homebuyer program (five sentences): If you’re a first-time homebuyer, you may be eligible for special programs and/or grants that can help with the down payment and/or closing costs. You may also get money from your employer if they have a housing assistance policy. Ask your human resources department about this! You might be able to take out a personal loan for the rest of the cost.
Lastly, ask around: You might find someone in your family or friend group who’s looking to sell their home but can’t afford it on their own – maybe they’ll let you buy it with them? Or, hey – maybe you could move in together?!
Don’t Overlook the USDA Loan Â
The United States Department of Agriculture (USDA) offers a zero-down payment loan for eligible rural and suburban homebuyers. USDA loans are available through participating lenders, and you can check your eligibility here.
Eligible properties must be in one of the following categories: substantially damaged, substandard, or unsafe. Single family homes, multi-family units and manufactured housing may be eligible. Contact a local lender to find out if they offer this program.
Conventional Mortgage with Only 5% down Payment
The most common type of loan is the conventional mortgage with a down payment of at least 5%. With this option, you’ll have a fixed interest rate for the life of your loan. You can also choose a shorter term, such as a 15- or 20-year loan, to pay off your home faster and save on interest. Plus, you won’t need private mortgage insurance (PMI).
Some lenders will offer an FHA loan with less than 3% down if you qualify. You might need PMI depending on your credit score, but it could be worth it for an easier qualifying process.
Government programs like the VA home loan and USDA rural development loans also require little or no money upfront. But these programs are typically only available in rural areas in certain states due to their eligibility requirements. You may not be able to get a low down payment from a lender who doesn’t offer them, but you may qualify for one of the government programs.
Most people don’t have 10% of their home’s purchase price available up front when they’re ready to buy. That’s why it’s important to do some research before applying for any type of loan.
Don’t Forget These Consideration
Before you start shopping for a new home, it’s important to get pre-approved for a loan. This will give you a better idea of how much house you can afford and put you in a stronger negotiating position with sellers. Here are five of the easiest ways to get a loan for a new home:
1. Go through your local bank or credit union.
2. Use an online mortgage broker.
3. Get a loan from the government.
4. Talk to a private lender like Quicken Loans or Freedom Mortgage.
5. Compare interest rates by searching at LendingTree, Bankrate, Credit Karma, or NerdWallet. You should also consider whether to lock in a rate (a fixed-rate mortgage) or be willing to adjust as rates change (an adjustable-rate mortgage).
You might also want to look into what type of property taxes you’ll have on your new home. Depending on where you live, these could range from nothing to nearly half of your annual income.
While getting a loan is easy enough, many people need help figuring out what they can afford before they even think about applying for one.
There are plenty of financial calculators that can help. Once you’ve done the math, you can go back to your bank or mortgage broker and talk to them about how much money you’ll realistically be able to borrow. The more comfortable you are with the numbers, the more time they’ll have to devote just to discussing the pros and cons of each available option.
