There are three most common types of loans available to buyers: Convential, FHA and VA.
Here is the honest break down of what these loans entail, and what your loan means when making an offer on a property. There are hurtles with everything in real estate, but it depends on your agent’s resilience, creativity and dedication on whether or not your offer will be presented in the best way possible. The agent you choose does matter, especially when working with tougher loans.
FHA
3.5% down payment
620 (estimated) credit score required
Mortgage insurance required
Only used for primary residence.
FHA has fairly strict property condition guidelines (so a fixer-upper probably would not qualify), or a home with a lot of deferred maintenance. A seller would have to be willing to make the repairs to his/her home in order to sell to a FHA buyer. FHA appraisals stick to the home for 6-months. So, if a house appraises for less than the offer price, the seller will need to either sell that home to an FHA buyer for that price (unless the FHA buyer can pay cash for the difference), or the seller will opt to not accept FHA buyers on the property. If a FHA appraisal comes in low, you will need an ambitious realtor who is willing to fight for the appraisal value.
VA
0% down payment
620 credit score required
Mortgage insurance is NOT required
Only used for primary residence
Much like an FHA loan, VA also has very strict guidelines to property condition. Also, for inspection, the seller is required to pay for the termite inspection (cost to seller, which is about $150). Just like an FHA loan, the VA appraisal sticks to the property for 6-months. If the appraisal comes in low, you will need to have a tough real estate agent on your side to help the home appraise for a higher value. There are ways to do this, but you will need to make sure you have a creative and resourceful realtor representing you. Seller and buyer will need to agree to take the necessary steps in order to hurtle a low appraisal issue.
Conventional
5%+ down payment
620 credit score required
Mortgage insurance required— depends on down payment
Used for primary, secondary, and investment property
A conventional loan, is usually viewed by the seller as the strongest loan. If a property has multiple offers on it, sellers are more likely to accept a conventional loan over other loans. With that said, though, there are ways that a strong real estate agent can coach FHA and VA buyers on how to beat out a multiple offer situation. For conventional loans, there aren’t any restrictions on property condition, and the appraisals are not as strict.
It is important to know what your loan means to a seller– so that you can understand how to make a strong offer. Knowledge is power when searching for a home. Sellers will usually share what kind of loans they are willing to accept on the sale of their property, on the Multiple Listings Website. Your real estate agent should know the types of loans the seller is willing to consider, before viewing the property.
If you have any questions on loans, please feel free to contact us. We are here to answer your questions, and put you in touch with our preferred lender who can go more in debt with you on loan origination.
