Most Commonly Used Types of Home Loans

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If you’re considering purchasing a property and need to finance all, most, or some of the purchase, it is useful to be informed of what real estate loan programs exist in the United States.

The following infographic and descriptions of the five most commonly used types of home loans in the United States should help you understand where to get started when it comes to pursuing a loan for the property you want to purchase.

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Conventional Loans

Conventional loans require a 5% downpayment if you’re purchasing a single-family home. If you’re planning to buy a multi-family dwelling, be prepared to spend 20% or more on a down payment.

Conventional loans are ideal for buyers who have some capital available. Investors and repeat buyers are typically ones who go the conventional loan route.

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FHA Loans

FHA loans are popular among first time home buyers, because they require only a 3.5% down payment as opposed to 5% required for conventional loans. Most first time home buyers don’t have the capital required for conventional or ARM loans, so the FHA loan route is more appropriate for them.

FHA loans are insured by the federal government, which created the program to encourage home ownership by promoting loans to people who are not as financially established.

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VA Home Loans

To qualify for a VA (Veteran’s Affairs) loan, you must be a veteran of the US military. As part of their benefits package, military vets usually know how to access the VA program. To qualify for VA loan benefits, military veterans must have been active for a certain period of time and have received an honorable discharge from their specific branch of the military.

VA loans don’t require a down payment. They also don’t have a mortgage insurance (PMI) element to them.

Both of these factors make the VA loan program a no-brainer for anyone who qualifies.

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USDA Loans

The United States Department of Agriculture (USDA) is responsible for developing rural areas. Part of its role is to encourage home ownership in those areas.

The USDA has 0 down home loan programs to help people in situations that qualify. You can visit the eligibility section of the USDA website to see whether a piece of property you’re considering qualifies for the USDA loan program.

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ARM Home Loans

Mortgages that have adjustable rates (Adjustable Rate Mortgages or ARMs) can be used in short-term situations where it is anticipated that a mortgage will be paid off or refinanced later.

With ARM loans, borrowers can often purchase a property with a lower interest rate with the understanding that it is adjustable, and will most likely increase. When the interest rate on an ARM increases, obviously the monthly payment consequently increases. The

ARM home loans tend to be used for purchases and scenarios that are riskier compared to other mortgages, and thus they require a higher 10-20% down payment.