Most new homeowners will have to finance their home purchase by taking out a loan. One type of loan you may qualify for is a Federal Housing Administration (FHA) Loan. FHA Loans are sponsored by the federal government and help make it easier for first-time home buyers to purchase a home. FHA loans are usually easier to qualify for than conventional loans and have lower down payment requirements.
Keep in mind that you will need to pay an insurance premium for an FHA loan that will be rolled up into your monthly mortgage payments. Additionally, there are VA loans, which are loans sponsored by the US Department of Veteran Affairs (VA). VA loans are guaranteed by the federal government but are not directly provided by them.
If a veteran or their family member qualifies for a VA loan, the VA will sign on the loan as a guarantor to provide the lender with more security, which leads to more favorable terms for the borrower.
A conventional loan is a loan that is not backed by the government. This type of loan is used by most buyers. Conventional loans are not backed by the federal government, although most must follow certain regulations set by the government.
Conventional loans come in two forms: conforming loans and non-comforming loans. Conforming loans adhere to guidelines set by entities like Fannie Mae and Freddie Mac, which are housing entities backed by the government.
This allows for conforming loans to be sold on the secondary market, meaning large banks and other establishments that lend money.
Non-conforming loans are provided by private companies that set their own loan guidelines, and since they are not regulated to the extent of conforming loans, they are not allowed to be sold on the secondary market.
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