Buying a home or commercial property is a complex experience that requires a lot of research in order to get the best deal.
If you’re not sure how to choose a property loan that’s right for you, it’s crucial to understand the differences between the many loans available.
Read on to discover some key facts about property loans so you can choose the one that’s right for your needs.
Commercial Property Loans
If you’re looking for a loan to purchase a business, these loans require a lot more money and a lot more information. You’ll need to provide a larger downpayment in most cases in order to secure the loan.
Lenders may ask for your company’s financials, and they’ll also scrutinize your personal credit as well. If you have a proven track record of success, the odds of approval are much higher for commercial property loans.
It’s also easier to get a loan of this kind if you’re using the property as an investment. However, if the property will be used as a storefront or for commercial activity, you’ll be expected to provide more thorough information.
Look for an agent or broker who specialized in commercial property loans to help you navigate the process and find the best deal. They can assist you with scoping out a prime location as well as helping you find the best terms.
How To Choose A Property Loan: Conventional Mortgages
A conventional loan is a bit tougher to get than many other government-backed loans such as FHA, VA, or USDA. Most lenders require you to have a credit score of around 620 or higher to be approved.
However, conventional loans offer some perks that other loans don’t. For example, even if you have less than a 20 percent downpayment, you can eliminate PMI (private mortgage insurance) once the home has 80 percent equity.
With a government-backed loan, you’re stuck with PMU for the life of the loan, even if the equity rises. Today’s conventional loan requirements also don’t need a high downpayment as they did in the past. Many programs allow for down payments as low as three percent in some cases.
If you have good credit, a stable job, and decent income history, a conventional loan can be a wise choice. Talk to your lender or mortgage broker to find out more about how you can qualify.
FHA Loans
As you ponder how to choose a property loan, government-backed FHA loans are a popular choice for many buyers. If you have low to moderate-income and a decent credit score, an FHA loan might be an excellent choice.
These loans are insured by the Federal Housing Administration and are usually offered to borrowers who may not qualify for a conventional loan. You can put as little as 3.5 percent down on many FHA loans.
You’ll need to find an FHA-approved lender if you want to apply for this type of loan. You may also be required to pay an annual mortgage insurance premium upfront which can take more cash out of your pocket at closing.
If you’re worried about your ability to qualify for a home loan, FHA is a wise option thanks to more relaxed terms. Some people who have a credit score as low as 500 may qualify, but they’ll be required to pay around 10 percent as a down payment. If your score is 580 or higher, you should be able to pay the standard 3.5 percent.
Loans For Veterans: VA Loan Programs
If you are an active duty service member or a veteran, look into VA loans. These mortgages are offered by the U.S. Department of Veterans Affairs and most programs allow you to finance 100-percent of the loan with no down payment.
There’s also a cap on closing costs for most VA loans which include no broker fees. However, you will be required to pay a funding fee, which is a percentage of the loan designed to offset taxpayer costs.
Ask your lender about how much your funding fee might be. The total of the fee depends on your service category and the loan amount, but veterans with a service-related disability are exempt from the fee altogether.
Surviving spouses of veterans who died in service or via a service-related disability are also exempt from VA loan funding fees. Others include veterans who would get VA compensation for service-related disability if they did not get retirement or active duty pay. Talk to a lender who specializes in VA loans for more information and to help you get started.
USDA Loans
If you live in a low-income or rural part of the country, you could be eligible for a USDA loan. These loans are guaranteed by the U.S. Department of Agriculture and are designed to make it easier for buyers to purchase a home in these areas.
The USDA loans have specific income limits, so check your location before you apply. If you qualify, a USDA loan usually requires little to no money down as long as you meet the other eligibility rules.
This type of loan is ideal for those living in rural areas or who have a lower income. They work well for anyone who would not otherwise qualify for a conventional loan or who does not have the cash they need for a down payment.
Finding The Right Loan For You
When you think about how to choose a property loan, consider your income, credit, and how much you have saved for a down payment. Talk to a broker or a few lenders in your local area that will walk you through the steps and get you qualified for the home you want.
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