Should I Meet with a Lender (+Loan Types)

When buying a home, you want to make sure you are getting the best possible financing as this will most likely be one of the biggest purchases within your lifetime. If you have the cash on hand you can skip the step of meeting with a lender. However, we can save you the wondering and say that the number of people who buy houses with cash is far and few between.

Doing the research ahead of time on the best lenders and financing could save you thousands of dollars over the lifetime of your mortgage. If you’ve been following our home buyer timeline you would have already accrued savings, checked your credit score, and found a reputable real estate agent to guide you through the process. Asking your real estate agent or doing research online can be a great way to find the right lender for you.

Before purchasing a home you will need to have a lender or bank verify your ability to purchase a home. This is called the pre-approval (or pre-qualification) process, which we will be discussing in our next post. While it’s possible to get pre-qualified using an online portal or company, we always encourage first-time homebuyers to meet with a lender in person (if possible) early in the process to discuss your financial situation. 

While some banks and lenders are only interested in numbers and getting as many people loans as possible, some lenders will actually take the time to discuss all the possible options and provide a loan option that works best for your specific scenario. That is the kind of lender you want! It’s worth taking the time to find a lender that you know has your best interests in mind. Some lenders give very attractive loan estimates to draw in customers, but once under contract, the amounts may go up. This can be avoided by working with a lender who will be upfront about realistic costs.

Most importantly, a good lender will also discuss in detail home buyer loan types and programs that you could possibly qualify for. There are even specific loan programs for first time home buyers that can really make the difference for those purchasing for the first time. Depending on your situation, this could be an FHA loan, VA loan, Conventional loan, or one of the many other loan types available.

CONVENTIONAL LOAN

Conventional Loans are loans that are not a part of a specific program. Conventional Loans are backed by a private lender, not the government. These typically do not have the unique, stringent requirements that other loans do when associated with a specific loan program. Down payment requirements can vary for each person receiving a conventional loan. Typically conventional loans require private mortgage insurance for down payments under 20%. You will need to meet specific debt to income ratio requirements as well as have a healthy credit score. Credit scores above 740 typically get the best rates.

FHA LOAN

FHA Loans may be a good fit for first time home buyers and those with fewer savings. The minimum down payment that is typically required is 3.5%. The loan amount does reach a ceiling around the $400,000 range and automatically requires private mortgage insurance for the life of the loan.

USDA LOAN

A USDA Loan is a rural development loan for homes classified as residing in a rural area. With USDA Loans it is possible to purchase without a down payment! They may require private mortgage insurance, they have debt to income limits, and it's much less likely to be able to close early on a home due to the time needed to process the loan.

VA LOAN

The Veterans Affairs Loan is for those who have served in the military for “90 days consecutively during wartime, 180 during peacetime, or six years in the reserves”. They also have other requirements for the home that must be met in order to be used. The home cannot be an investment property, it must be a primary residence. It also has specific requirements for the quality of the home, so you are less likely to be able to purchase a fixer-upper.

BRIDGE LOAN

A Bridge Loan is for people who already own one home and are wanting to purchase a second home before selling their first home. A lender can combine both mortgage payments into one. Once the first home is sold then the homeowners would need to refinance their loan. The downside is that there is a risk in acquiring more debt before your previous home sells. You are still technically paying more each month even if it is only one payment. This could cause hardship if your first home does not sell in the time you expected.

There are many other loan programs available and, depending on where you live, your local area may have specific loan programs unique to where you are.

We always recommend that you do your own research. Like we said before, a great place to start is by talking with your real estate agent and meeting with a highly rated lender. That way you are getting information that specifically pertains to your needs.

We hope you find the right fit for you!