Which Loan Is Right For You?
At some point in every adult’s life the monthly rent payments begin to get old, and they start to toy with the idea of owning their own house. However, if you are considering taking this step, remember that the responsibility of a homeowner is much greater than that of someone who merely rents an apartment. The care and maintenance of your living space will be up to you. Plumbing, air conditioning, yard work, you’ll be responsible for it all.
Unless you just won the lottery or your dead Uncle Fred has left you a little wealth, you would need to get a loan to obtain your dream home. There are 100% financing loans available for the people with no down payment. Government loans for those who meet the criteria. Conventional loans where you, as the purchaser are responsible to come up with a extensive down payment.
Again, the conventional loan is the most common type, and is what most people think of when they think of a home loan. This requires good credit on the part of the buyer and a down payment of at least 3%. If you were purchasing a $100,000 home, this would amount to at least $3,000, and this is assuming you have good credit! If you have clean credit, this might be your best bet, but otherwise this might not be the correct loan type for you. Luckily, there are other options.
There are, for example, government loans, and 100% financing loans. 100% financing loans are available through the conventional means, but it requires perfect credit. Other means of applying include the VA and the FHA.
In terms of the government, the Veteran’s Administration (VA) and the Federal Housing Authority (FHA) both offer 100% financing loans. This means that a prospective buyer doesn’t need to come up with a pricey down payment, but as these loans are considered high risk, you will get stuck with a higher interest rate.
These are just a few of the options available to you. If you continue with your loan research you will see there are myriad other types and sub-types. For example:
If you have good credit but no verifiable income there is a type of loan known as a no income verification loan. Similarly, if your credit is less than perfect, you might consider researching imperfect credit loans, which might allow you to qualify for lower, more competitive interest rates. If you are interested in the amount of money you can reasonably afford to spend on a house, pre-approval programs allow you to do this, even before you have picked out a property. There are also programs specifically targeted to first time homebuyers, as these programs are tailored to prospective buyers with good credit but without a long credit history. Additionally there are loans for new construction which get a fixed interest rate when the home is being constructed, and keeping this loan after purchase. Note: This is only advantageous if interest rates go up after you lock in a rate.
Graham McKenzie is the content coordinator for a leading South African leading Homeloans and Bond Origination portal which provides access to ABSA Homeloans.