What are unconventional home loans?
A mortgage is something you’ll likely only need to apply for a few times in your life, so like most home buyers, you may not know all of your options. Learning about the different types of home loans can help you get an idea of how much you can afford to spend, how much cash to have up front, and what type of property you should look for. The most common unconventional loans are FHA loans, USDA loans and VA loans; one of these might be just the thing you need to make your home-buying dream a reality.
An FHA loan, insured by the Federal Housing Authority, is designed to help low- or moderate-income buyers and protect lenders. The FHA itself does not issue the loan, but it insures the loan and protects the lender in the event of a default or foreclosure. For the borrower, an FHA loan allows the opportunity to buy a home without a large down payment. FHA eligibility will vary based on where you live, so before you begin your property search, you should check the FHA limits for your area if you are interested in this product.
Similar to FHA loans, USDA loans help both a buyer and a lender; the lender is protected by the USDA’s guarantee and the buyer can purchase a rural home or farm property with favorable terms, including a low down payment. You do not have to live on a farm to get a USDA loan; many rural and suburban areas are covered as well. A USDA loan is a good alternative if your area qualifies, since the income guidelines are designed to cover a wider range of incomes than an FHA loan.
The Veteran’s Administration offers a loan guarantee program that includes low or no down payments and favorable credit terms for veterans who qualify. If you are a veteran and have not been dishonorably discharged, you will likely qualify for this type of loan and should consider it, particularly if the houses for sale in your area are under the program maximum limit of $417,000. If you qualify for a VA loan, you’ll work with a traditional lender. You’ll need to include a few more pieces of information about your military service; otherwise the process is similar to applying for a conventional home loan.