When it comes to building or buying a new home in Virginia, one of the most important decisions you must make is how you will finance the project. Prospective homebuyers have various mortgage options on the market and the far-reaching impact of borrowing such a large sum of money to consider.
Home loans available for Virginia residents fall into two main categories: government loans and conventional home loans. Within these categories, the various types of home loans are accessible to prospective home buyers based on certain qualifications and criteria. Here is a brief look at the most common loans included in each category and how they can affect your budget for buying a new home.
A bit of a misnomer, government loans are not actually offered by the federal government directly. Rather, the government insures the loan in case the borrower defaults on the loan, which makes the mortgage less risky for financial institutions and allows them to lower their lending requirements for prospective home buyers.
Federal Housing Administration (FHA) loans are especially popular among first-time homebuyers or individuals with high debt-to-income ratios due to their availability to those with little savings and/or mediocre credit. Even with a 500 FICO credit score, you can qualify for an FHA loan with as low as 10% down. Those with a higher credit score – such as 580 and above – can qualify for a mortgage with a down payment as low as 3.5 %.
One catch with FHA loans is they are often accompanied with a mortgage insurance premium (MIP) that adds an additional fee – typically in the amount of .85% of the loan amount – which is charged annually. FHA borrowers are also required to pay an upfront mortgage insurance premium of 1.75% of the loan amount at closing.
As the name implies, VA home loans are only available for veterans, as they are backed by the U.S. Department of Veterans Affairs. These loans – although exclusive – offer numerous benefits for military service members and their families in Virginia, including no down payment requirement and no mortgage insurance, saving homeowners a couple thousand dollars each year. For 2019, homebuyers who qualify for VA loans in Chesapeake and Virginia Beach can get up to $484,350 with zero down on a single-family residence.
The VA charges an upfront funding fee that often varies from 1.25 to 3.3. percent of the loan amount, but that typically can be rolled into the loan or even paid by the seller.
The U.S. Department of Agriculture also offers mortgages for residents in rural areas, commonly called Rural Housing Loans. While that may sound exclusive, about 95% of the country – including many suburban areas – falls within the program’s eligibility. The appealing aspects of these loans are similar to those of VA loans: no down payment and low mortgage insurance fees.
USDA home loans do, however, require borrowers to have a 640 credit score or higher to qualify.
Conventional home loans, offered by private lenders and not insured by the federal government, are defined as conforming loans because they meet the guidelines of Fannie Mae and Freddie Mac, agencies that help standardize mortgage lending practices throughout the U.S. Although conventional home loans have more stringent requirements than government loans, they are the most popular type of mortgage among the general population.
One of the benefits of conventional loans is you have options for paying off your mortgage, as they come in 15-, 20-, 25-, and 30-year terms. They require a monthly mortgage insurance fee, but only if the homeowner makes a down payment that’s less than 20 percent.
The downside is you must have acceptable credit – at least 620 or above – in order to qualify for the best interest rates.
Conventional 97 Mortgage
This low-down payment mortgage program is offered by Fannie Mae and designed to offer another option for individuals who don’t have enough for a large down payment. In fact, as indicated by the ‘97’ in the title, homebuyers only need to provide a 3% down payment.
Conventional 97 loans are available to both first-time homebuyers and repeat buyers. Applicants only have the option for 30-year fixed-rate mortgages.
Getting a Home Loan in Virginia
As with many aspects of home buying and building, what is best for one person may not be best for another. The good news is prospective buyers in Virginia have plenty of options when it comes to selecting the most suitable mortgage for their financial situation, specific qualifications, and how long they plan to live in the home. The professionals at Tidewater Home Funding understand how daunting it can be to obtain a mortgage for your new home in Chesapeake. They will walk you through your options, the application process, and post-closing functions.
“Types of Mortgage Loans Available.” TheLendersNetwork.com. Accessed online at https://thelendersnetwork.com/types-of-home-loans-available/