Financing Basics


If you're looking for a mortgage, the best approach before house hunting is to put some time into deciding how much home you qualify for, what you are comfortable with, and then get pre-approved. A good mortgage broker or lender will guide you through all the different programs and options.

Here are some basics on the most common loan types and some other less obvious sources of funding:

Conventional Loans

Fixed or adjustable-rate mortgages that are not insured or guaranteed by the federal

government. Although they are the most difficult to qualify for due to their requirements

such as down payment, credit score and income, certain costs, such as

private mortgage insurance, can be lower than with other guaranteed mortgages.

FHA Loans

The Federal Housing Administration (FHA), part of the U.S. Department of Housing and

Urban Development, provides various mortgage loan programs. An FHA loan has lower

down payment requirements and is easier to qualify for than a conventional loan. FHA

loans are excellent for first-time home buyers because in addition to lower upfront loan

costs and looser credit requirements, they allow down payments of as low as 3.5%.

VA Loans

The U.S. Department of Veterans Affairs (VA) guarantees VA loans. The VA does not

make loans itself, but guarantees mortgages made by qualified lenders. These

guarantees allow veterans and service people to obtain home loans with favorable

terms, including zero down, and in most cases they are easier to qualify for than

conventional loans.

Home Equity Loan

You or family members may have a considerable amount of equity built up in a home

already that can be used for an upcoming purchase.

Company Profit Sharing or Savings Plan

Check with your employer to see about the possibility of withdrawing or borrowing from

what you have in your accounts.

Retirement Savings Plan (401k)

If your employer offers this type of plan in place, inquire about the possibility of

withdrawing or borrowing from this account as well.

First-time Buyer Financing

If you have not held title to real estate in the past three years, you could qualify as a

first-time buyer, which could mean special financing from your state or local housing

agency. This usually means a smaller down payment or a lower interest rate, and in

some cases both.

Gift Money

Family members and partners may have funds available to be used toward a down

payment and/or closing costs.