No two homes are the same, and neither are the people who buy them. When you start your homebuying process, whether it’s your first time or you’ve been there before, it’s important to carefully consider which loan options are best suited to your needs at this time. For example, if you’re a repeat buyer, what worked for you the first time may not be the right fit this time around.
This is why it’s critical that buyers work with a lender who listens and understands that homeownership isn’t one-size-fits-all. In this article, we will explain what different types of buyers may want to look for in the mortgage process. Don’t think of these suggestions as hard and fast rules, but rather, think of them as a jumping-off point for your own mortgage search.
How to Figure Out the Right Home Loan Options for You
Before you dive into the loan process with your lender, it may be wise to figure out how much you can afford. You could get a rough estimate of the total loan amount you might be able to handle using our mortgage calculator. Just note that the results from the calculator may not reflect the final loan amount you’re able to get from a lender.
You should also consider your goals with this home purchase. Are you looking for your forever home? An investment home? A getaway? That goal will inform the ideal home loan option for your situation. Then, once you have an idea of what you might be working toward, create a savings plan to help you manage upfront costs. You’ll also want to think about the length of loan you’d like to target.
Of course, if you have a lender you can trust, you can discuss all of this with them, and they can provide you with helpful guidance in the direction of the right loan for you. Finally, remember that a mortgage, no matter what kind you get, is not a decision to take lightly. Do your best to ensure you’re ready to afford the costs you’re about to incur, and know that you will still have to meet your lender’s requirements no matter what type of loan you apply for.
What Different Kinds of Buyers May Want to Consider
Below are some mortgage options for different buyers to think about. However, the home loan options here are not exhaustive, nor are the types of buyers listed. You may also see a loan type listed under a certain kind of buyer that seems like it might be a good fit for you. If you feel like other loan options are better suited to your situation, be sure to talk to your lender about it!
First-Time Homebuyers
Many mortgage options are available to first-time home buyers. Conventional loans are a very popular option for buyers. They are loans that can be guaranteed by Fannie Mae and Freddie Mac because they conform to the loan limits for the home’s area. If you have a strong financial profile, conventional loans might be the most straightforward option for you.
However, first-time buyers may also want to consider Federal Housing Administration (FHA) loans. These loans are guaranteed by the FHA, and they have some potentially attractive features for eligible borrowers. For example, they often have lower down payment requirements and less stringent credit requirements compared to conventional loans.
Veteran Homebuyers
Veterans have a number of options available to them, but one popular loan option for eligible veterans, active-duty service members, and surviving spouses is the Veterans Affairs (VA) loan. VA loans have several unique features that make them especially appealing for eligible veterans.
In many cases, VA loan borrowers do not need to pay down payment for their home. They also do not need to pay private mortgage insurance, and there are no pre-payment penalties.
VA loans can help qualified borrowers buy, build, or refinance a home. So, this option could be well suited to a variety of needs for eligible veterans.
Rural Homebuyers
Maybe you’re not a fan of the hustle and bustle of big city or large suburb living. The United States Department of Agriculture (USDA) loan might be a good fit for you, then. USDA loans are insured by the USDA, and it was created to help low-to-middle income individuals buy homes in rural communities. Some borrowers may even be able to get a USDA loan with no down payment.
Second Home and Investment Property Buyers
If you are buying a vacation home or investment property, you may want to look into portfolio loan options like second home loans or investment property loans. These loans were designed for those specific use cases, so they may be a good way for borrowers to finance those home purchases.
Homebuyers with a Specific Vision
If you have a strong idea of what your dream home should be, you may want to consider a construction loan. Construction loans can help buyers get their dreams off the ground, and depending on your lender, they can support a variety of different kinds of construction.
These loans can come in a variety of structures. For example, some construction loans have a two-time close structure in which a borrower closes on the loan to fund the construction and then converts the loan into a mortgage.
Construction processes can be complex, so it would be wise to find a lender who is experienced in construction lending.
Homebuyers without a W-2
Borrowers who are self-employed, independent contractors, freelancers, or gig workers may sometimes struggle to get a conventional mortgage. But that doesn’t necessarily mean there aren’t options for those borrowers. Certain types of non-qualified mortgages (Non-QM) were designed to help some of those people get a mortgage.
Bank statement loans or 1099 loans, for example, typically do not require W-2s or tax returns as proof of income. Instead, the borrower could provide bank statements or 1099 earning statements, respectively.
However, it’s important to know that non-QM loans can be riskier for borrowers, as they do not have to meet the rules established by the Consumer Finance Protection Bureau (CFPB).
Final Thoughts
As you can see, homeownership isn’t one-size-fits-all. There are so many different ways to become a homeowner based on your unique goals and needs. When you start your homebuying process, prioritize understanding your eligibility and loan options.
Then, it would be wise to find a lender who can help you find the right loan for your situation because you need a loan that fits your needs, not everyone else’s. That’s why loan officers from The Federal Savings Bank work closely with borrowers to understand their needs and match them to our solutions as best as possible.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
