Different Types of Home Loans You Can Apply for in the US

Different Types of Home Loans You Can Apply for in the US

Daniel Hall 03/06/2024
Different Types of Home Loans You Can Apply for in the US

The journey towards owning the home of your dreams comes with a lot of hardship.

Along with finding the right property that will suit your needs and budget, you also need to identify reliable financial assistance. Fortunately, if you are a resident of the US, there are numerous home loans that you can apply for. 

Financial assistance from reputable organizations can make the dream of owning a house come true. And for the residents of Missouri, getting financial assistance is even more straightforward. Numerous organizations offer down payment assistance in Missouri to make the dream of owning a house a reality. If you want to know more about the different types of home loans that you can apply for in the US, this article is here to help you. 

Different Institutions that Offer Home Loans 

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Broadly speaking, there are four major types of institutions that you can take a home loan from: 

1. Traditional Banks 

The first thing that comes to mind when applying for a loan is a traditional bank. Traditional banks are the go-to savior for loans in the US. However, there are numerous downsides to applying for loans from a traditional bank. First of all, the qualification criteria for applying for loans from traditional banks are higher since most banks require a credit score of at least between 670 and 739 to approve you for a loan. Moreover, most banks' interest rates are high compared to those of other institutions, making it an inconvenient choice for people. 

2. Credit Unions  

Even though credit unions are not the first choice for loans, they are a strong contender when it comes to home loans. One of the major reasons one can consider loans from these institutions is that the qualifying credit score is lower than that of traditional banks. Moreover, they also issue a low interest rate, making them great for low-income sections.  

3. Government-backed Agencies 

As the name suggests, government-backed loans are offered by government agencies in the US that offer government-backed loans to aspiring homeowners. These loans offer several benefits to the borrower, such as lenient eligibility criteria and lowered credit scores and interest rates. 

4. Mortgage Companies

Mortgage companies primarily focus on offering lending services to consumers at lower interest rates than other lending institutions and have an easier approval process. Moreover, if you are in urgent need of a loan, these institutions are your safe call, as they have a quick turnaround time. 

Different Types of Home Loans Offered

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1. Conventional Loans 

Conventional loans are divided into conforming and non-conforming loans. Conforming loans are financial assistance that meet the various standards set by the Federal Housing Finance Agency (FHFA). On the other hand, non-conforming loans don’t meet the FHFA standards. 

2. Government-backed Loans

  • FHA loans: 

Backed by the Federal Housing Agency, this loan is available to individuals with a credit score as low as 580. It requires a 3.5% down payment, or a 10% down payment is available for individuals with a credit score of 500. 

  • USDA loans: 

The United States Agricultural Department funds USDA loans for low-to-moderate-income borrowers. To qualify for this loan, you don’t need a credit score or downpayment; you only need a guarantee fee that ensures you will return the loan amount. 

  • VA loans:  

Backed by the Department of Veterans Affairs, this loan is offered to individuals who are serving or have served in the US military. 

3. Fixed and Adjustable Rate Mortgages 

The difference between a fixed-rate mortgage and an adjustable-rate mortgage is that in a fixed-rate mortgage, the interest is fixed for the entire tenure of the loan, while in adjustable-rate mortgages, the interest rate changes over time, typically after 5-6 years. 

Conclusion 

Owning a house no longer needs to be a dream when you are empowered by the right knowledge and wisdom. The article above aims to give you an idea about the different home loans available for homeowners and the different institutions that offer these loans so that you can make an informed decision while planning to purchase your house. 

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Daniel Hall

Business Expert

Daniel Hall is an experienced digital marketer, author and world traveller. He spends a lot of his free time flipping through books and learning about a plethora of topics.

 
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