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Know Your Loans

At Energy Smart New Homes, we are passionate about assisting families in realizing their dreams of home ownership. A crucial aspect of ensuring a smooth and successful home buying process is having the knowledge to navigate the realms of loans and realty. Securing a loan is often integral to the home buying journey, and the multitude of loan types and lending programs can be overwhelming. While individual circumstances vary, the two primary loans to consider for most individuals are FHA and conventional loans. Let's delve into their distinctions.

Consider the Down Payment

Overcoming the significant hurdle of gathering a sizable down payment is a key step in becoming a homeowner, especially in today's economic climate. Many individuals face challenges saving due to high rent and insurance costs or previous financial hardships that led to reliance on credit cards. For those in such situations, FHA loans are tailored to provide an opportunity for homeownership with a minimal down payment. While FHA loans have additional qualification requirements compared to conventional loans, they can assist in securing a home even with the bare minimum down payment.

With a conventional loan, a 20 percent down payment is considered ideal but not always mandatory. Options exist for down payments of 3, 5, or 10 percent when taking the conventional route. However, putting down less than 20 percent requires paying Private Mortgage Insurance (PMI) in addition to the mortgage. PMI protects the lender in case of foreclosure, and once you reach a 20 percent home equity, you can apply to have your PMI canceled.

Consider Your Credit

Another crucial factor in choosing between FHA and conventional loans is your credit score. Conventional loans typically require a credit score of 620 or higher, while FHA loans may be granted with a credit score as low as 500. However, a lower credit score correlates with higher down payment requirements. If you have a low credit score and a modest down payment, consider working with larger, national banks that are more willing to take on riskier borrowers.

These considerations, down payment and credit score, are pivotal when deciding which loan aligns with your needs. Ultimately, this is a personal decision that only you can make. Evaluate your finances, review your credit score, and commence the process of shopping for lenders to find the best fit for your home ownership journey at Energy Smart New Homes.

By Energy Smart New Homes 12-28-2023