Buying a New Home: 4 House Financing Options to Know

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If you're like 84 percent of people in the U.S., then the low mortgage rates probably have you tempted to purchase a home this year. 

However, deciding how to finance a house takes more work than simply picking the first loan option you see. The best house financing for you will depend on your credit profile, personal situation, and the amount of down payment you can afford.

Read on to learn about five house financing options you have for financing a home.

1. Fannie Mae HomeReady Loan

If you make 80 percent or less of your area's median income, you can possibly qualify for a Fannie Mae HomeReady loan. 

This home loan option allows you to put just three percent down. While you will pay private mortgage insurance, this requirement ends once you've gotten 20 percent equity in your home. 

You can qualify with a debt-to-income ratio of 50 percent and a 620 credit score. So, this program can offer more flexibility.

2. Federal Housing Administration Loan

If you have poor credit, then the Federal Housing Administration (FHA) loan may might financing a house still possible. 

You can have a credit score as low as 500 and qualify. However, you'll need to put 10 percent down. If your score is 580 or above, you can put just 3.5 percent down.

When choosing this loan, do know that you'll have to pay mortgage insurance for possibly the life of the loan.

3. Conventional Mortgage

Do you have good credit and can afford a sizable down payment? Then you might consider the conventional mortgage option.

You can avoid paying private mortgage insurance as long as you put down 20 percent of the house's price. However, you can often put down three to five percent as long as you're willing to pay the premiums. Further, someone can gift you that down payment money.

This type of mortgage usually comes with fewer restrictions than programs like FHA loans. So, you might have more housing options to choose from.

4. Veteran Affairs Loan

Do you or your spouse have an affiliation with the military?

If so, you might qualify for a Veterans Affairs (VA) loan and not have to make a down payment at all. Even better, you don't have to worry about paying for mortgage insurance.

Keep in mind that you will need to pay a funding fee that can depend on whether you've had this type of loan before. You can pay less for this if you put five percent or more down on your home.

Learn More About Your House Financing Options

Besides these five house financing options, know that many more programs exist out there. To learn more, it helps to reach out to a local home lender who can interview you and find multiple programs that best fit your financial needs.

In the meantime, you can do some research to determine how much you can afford to spend on a house. You can find many calculators online that take your income and expenses and give you an estimated affordable mortgage amount and payment.

For more home buying advice, check out our other posts about housing financing and personal finance. Visit the Real Estate and Finance sections of the Bootstrap Business Blog for additional information on mortgages and financial management.

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