Financing Options for Home Purchases

Financing Options for Home Purchases

Loan Types and What Makes Them Different

Here is an overview of the different loan types and financing options available to homebuyers through Alliance Home Loans:

FHA 

An FHA home loan is a great option for first-time homebuyers, homebuyers with small down payments, and homebuyers with past credit challenges.  FHA loans are insured by the Federal Housing Administration (FHA), and FHA charges the homebuyer for this insurance they provide.  It is called mortgage insurance premium or MIP.  FHA requires MIP to be paid by the homebuyer.  This "up front" MIP may be paid in cash or financed into the loan amount, and FHA requires an additional MIP to be paid monthly.  FHA sets the underwriting standards, rules and regulations for all of their loan products, but the loan products are provided to consumers through FHA approved banks, credit unions or mortgage companies.  A multitude of FHA loan products provide just the right fit for homebuyers including loans for homes that need repairs and loans for senior citizens.  FHA loans are solely for the use of homebuyers who will occupy the property as their primary residence.

VA 

VA loans are solely available to qualifying Veterans or their surviving spouses.  They are a great option for first-time homebuyers and repeat homebuyers alike.  VA loans are guaranteed by the Veteran's Administration (VA).  VA requires a Funding Fee to be paid by the veteran for the guarantee.  This Funding Fee may be paid in cash or financed into the loan amount.  Just like FHA, VA sets the underwriting standards, rules and regulations for all of their loan products, but the loan products are provided to consumers through VA approved banks, credit unions or mortgage companies.    VA loans may feature very low or no down payment options, allow for past credit challenges, and they are an excellent option for homebuyers looking at expensive homes that want to keep the down payment small.  VA loans are solely for the use of homebuyers who will occupy the property as their primary residence.

Conventional 

Unlike FHA and VA loans, Conventional loans are far less forgiving of past credit challenges.  Therefore, Conventional loans are used more by move up homebuyers or first-time homebuyers with larger down payments or excellent credit.  Conventional loans with down payments less than 20% have mortgage insurance just like FHA loans, but mortgage insurance for Conventional loans is provided by private mortgage insurance companies.  The insurance they provide is called private mortgage insurance or PMI, and a fee for PMI is charged in connection with the loan either up front (one time) or monthly.  Conventional loans can be used to buy a primary residence, second home or investment (rental) property.

USDA 

USDA home loans are a great option for first-time homebuyers or homebuyers without down payments looking to purchase a new or existing home in a qualified rural area. You can search for those areas here.  USDA loans are guaranteed by the US Department of Agriculture (USDA).  USDA requires a Guarantee Fee to be paid by the homebuyer for the guarantee.  This Guarantee Fee may be paid in cash or financed into the loan amount, but USDA also requires a monthly charge for the guarantee.  Just like FHA & VA, the USDA sets the underwriting standards, rules and regulations for all of their loan products, but the loan products are provided to consumers through USDA approved banks, credit unions or mortgage companies.  USDA loans do have a no down payment option, but they are typically not as forgiving of past credit challenges as FHA or VA loans.  USDA loans are solely for the use of homebuyers who will occupy the property as their primary residence.

Home Equity Conversion Mortgage (HECM)

The Home Equity Conversion Mortgage or HECM is a loan program insured by the Federal Housing Administration (FHA) and trusted by hundreds of thousands of Americans 62 years of age or older. Commonly referred to as a "Reverse" mortgage that allows homeowners to access the equity in their current home, the HECM can also be used as a purchase loan. Borrowers 62 or older can use a HECM to purchase a primary residence with less stringent income and credit requirements of a traditional mortgage.

Alternative Financing Options (AFOs) include the possibility to verify a homebuyer’s income by using deposits from the most recent 12 or 24 months of bank statements or by showing a total amount of assets on deposit as a substitute for income.  Shorter waiting periods for major credit issues including bankruptcies, foreclosures, and short sales are also available with this loan option.  Condominium properties that are not eligible for traditional financing options may be eligible with AFOs.  Finally, Foreign National homebuyers who are non-citizens & non-resident aliens can use AFOs to buy a home.  Alliance Home Loans AFOs are generally restricted to homebuyers who will occupy the property as their primary residence or second home.

If you are ready to start the application process, click HERE.

Get Started with Your Alliance Home Loan