Savvy Tips & Helpful Hints

What are the Different Ways to Finance a House Purchase

Buying a home is one of the most significant decisions that you will ever make in your life. The purchase price of the property is just the start. You’ll have to take into account closing costs, property taxes, mortgage interest, and other fees before you even move in. And then there are repairs to consider. It can be challenging to know where to start with so many financial considerations when buying a home.

If you’re ready for homeownership but aren’t sure how to finance it, then read on! Thankfully, this article will show you how to finance a house purchase with different financing methods! It will cover all the essential information you need to know about each type of loan and walk you through the process.

Seller Financing

If you’re looking for a way to buy a house with no money down, then seller financing might be the way to go. With this type of loan, the seller agrees to give you the property but asks for some form of compensation up-front.

With this type of loan, you don’t need any cash upfront. That means that it will be easier for you to qualify because there are fewer barriers in your way. You can also find properties with lower purchase prices because sellers are willing to accept an agreement that gets paid back over time.

However, you’ll have to consider how much interest you’ll be paying on the mortgage if the seller has a high variable interest rate on their end.

Bridging or Hard Money Loan

What is a Bridging Loan?

A bridging loan is a type of mortgage that you can use to buy a property before you have the funds to do so.

The process is most familiar with commercial properties where it’s challenging to get a conventional mortgage or where the seller needs an expedited sale.

It’s also popular in the United States for people who want to live in a country they’re not from and need time to get their finances in order. In this case, the buyer applies for a bridging loan from overseas lenders and uses it to deposit the property. You can get rates here for a bridging loan.

What are Hard Money Loans?

Hard money loans are short-term loans that provide enough cash to purchase residential real estate, typically six months or less. Private investors offer this type of financing, which means rates are higher than other types of mortgages. The lender does not care about your credit score or if you have equity in other properties — they want to know how much you can afford to pay them back. Unlike traditional banks, hard money lenders may be able to close on your deal within days instead of weeks.

Conventional Mortgages

The most popular form of financing a home is the Conventional Mortgage. With this type of mortgage, your down payment will be anywhere from 3 to 20 percent of the total purchase price and depend on lenders and mortgage programs.

 These loans offer fixed interest rates and enable you to repay your loan over a 30-year term. For example, if you buy a $200,000 house with a 3% down payment, your monthly mortgage payments would be about $1,500 per month for 30 years.

What’s more, with conventional mortgages, you can also qualify for additional money to cover repairs or renovations to the property if needed. This type of loan is ideal if you’re looking for a large purchase and want to pay off your loan in full to avoid paying PMI (Private Mortgage Insurance).

FHA Loans 

An FHA loan is a mortgage that will allow you to buy a house with a down payment as low as 3.5%. You’ll need to be pre-approved, and the home you’re buying must meet specific requirements, but an FHA loan is an excellent option if you’re interested in purchasing a home without putting any money down.

But before you apply for an FHA loan, there are some things you should know.

What Criteria Do I Need To Meet For An FHA Loan?

For an FHA loan to be approved, the borrower has to have a credit score of 580 or higher. To purchase a property with an FHA loan, the borrower can’t owe more than 43% of their income on housing expenses, and the property they want to buy must have been appraised.

How Much Will My Monthly Payment Be?

One of the main benefits of getting an FHA loan is no down payment requirement. But it does come with monthly mortgage insurance premiums (MIP), ranging from 0.8% – 1.25%. The MIP is an expense that gets added to your monthly mortgage payments and helps protect your lender from losses if you.

VA Loans 

One of the most popular home loans is a VA loan. A VA loan offers benefits like no down payment, low closing costs, and flexible underwriting guidelines. If you or your spouse served in the military and met eligibility requirements, you may be eligible for VA loans.

To qualify for a VA loan, you must have an honorable discharge from active duty service, make a reasonable effort to obtain education or training after active duty service, not have been convicted of any federal or state drug offenses, and have no outstanding debts to the US government.

VA loans are typically easier to get than other types of home loans. With these types of loans, there are no down payments required, and closing costs are often lower than different types of mortgages. There are also more lenient credit guidelines, so it’s easier to qualify even if you don’t have a perfect credit history.

USDA Loans 

A USDA loan is a government-backed, low-interest mortgage. They are designed for people who have little money for a down payment to qualify for a home loan.

The best part about these loans is that you can buy property in an area where lenders typically don’t lend so that you can purchase homes in rural areas.

However, there are drawbacks to the program. If you’re not careful about your budgeting, it’s possible to purchase more houses than you can afford because of the low down payment requirements. There are also strict income limitations that restrict eligibility for some country areas. And lastly, you must live on your property after closing or lose it to foreclosure.

Use Your Retirement Funds

If you have a 401k, an IRA, or another retirement account, you can withdraw up to $10,000 without paying the penalty. And the money will be taxed as income.

This is one of the most accessible financing methods to use when buying a home! You could withdraw funds from your retirement account and use the money towards your down payment for your new house.

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