Buying a home is the biggest financial decision you’ll make in your life. With so many real estate financing options available, it makes sense for your situation. Paying cash for a home means you buy it outright without taking out a mortgage. The main advantage of this strategy is that you avoid paying interest, origination fees, and other costs associated with loans. You’ll also have complete freedom over the transaction since you won’t need lender approval. However, few home buyers have enough cash on hand to purchase the property outright. Paying cash requires significant savings – often decades’ worth. Even those who pay cash may find better uses for those funds than tying them up in a home. Investing excess cash may provide higher returns than the amount saved on interest by avoiding a mortgage.
Conventional loans
A conventional loan is a mortgage that Fannie Mae and Freddie Mac. These guidelines set standards for things like loan amounts, borrower credit scores, debt-to-income ratios, and down payments. Conventional loans are appealing lower interest rates than government-backed mortgages. They also provide more flexible qualifying guidelines than government loans. Borrowers need a good credit score (typically 620 or higher) and solid finances to qualify. Conventional loans usually require a down payment of at least 20% to avoid paying private mortgage insurance.
FHA loans
FHA loans are government-insured mortgages issued by private lenders. They’re popular among first-time home buyers because they require lower down payments and credit scores compared to conventional loans. Borrowers qualify with a down payment as low as 3.5% and a credit score of 580. They finance closing costs and down payments into the loan amount. FHA loans also allow higher debt-to-income ratios than conventional loans. The trade-offs are higher mortgage insurance premiums and upfront fees. Borrowers pay an upfront fee of 1.75% of the loan amount plus an annual mortgage insurance premium of 0.85% to 1.05% of the original loan amount. The insurance premiums last for the life of the loan unless you refinance.
VA loans
VA loans help eligible borrowers buy a home with no down payment and no monthly mortgage insurance. These mortgages are backed by the Department of Veterans Affairs and issued to qualifying service members, veterans, and surviving spouses. VA loans offer competitive interest rates and let borrowers include closing costs in the mortgage. To get a VA loan, borrowers must have adequate income and credit score, but no minimum score is specified. VA appraisals provide more flexibility with home standards and repairs that need to be made before closing.
Seller financing
Seller financing occurs when the home seller carries back part or the entire mortgage, collecting monthly payments rather than a lump sum at closing. This creative Kansas Real Estate MLS financing method helps buyers purchase a home with little or no down payment. It offers flexibility for buyers who can’t qualify for a traditional mortgage. However, seller financing comes with risks for both parties. For sellers, carrying the note means assuming liability for the loan and any issues with missed payments or default. For buyers, seller financing terms are less regulated so be sure to protect yourself with a detailed, written contract reviewed by an attorney.
