How to Strategically Choose a Home Loan

It’s your first time buying a home and you need a loan! Which one home loan do you choose? How do you know which one is better for you? Look no further because below I have listed the pros and cons of several different types of home loans.

Single Ownership
Single ownership is if you do not plan on owning multiple houses at one time. There is no need to worry extensively over the type of loan to take in this situation. You should take the best one that fits your personal needs at the time.

Multiple Home Ownership
If you have ownership of multiple homes, it get a little bit more tricky when choosing a home loan. In order to collect as many houses as possible it is important to strategize what type of loan you want to have in each situation.

The FHA Home Loan

• First time home buyer only program.
• Best used in a buyer’s market, but considered weak by sellers because bank appraisals are strict on repair requirement.
• PMI (Private Mortgage Insurance) exists forever so unless the rates stay the same you are stuck with this payment forever.

Pros:
I would only recommend this loan if it is your only option to getting your foot in the door.

Cons:
Personally this is my least favorite loan. I truly don’t recommend it at all. The conventional loan is better for only 1.5% more money as the pmi fall off and theirs no funding fee. Required to live in the house for one year before you can move out (some special allowances available).

The VA Loan

• $417 ,000 total loan value. It can be used for multiple houses as long as you do not the exceed loan value.
• 0% with funding fee, 2.15-3.3%
• Applicable to multiple houses. Can be used for multiple houses.
• Best used in a buyer market. Considered weak by sellers because bank appraisals are strict on repair requirements

Pros:
I love the VA home loan. We personally bought two houses with this type of loan. It is best for a buy and hold situation. The funding fee is absorbed better into the house value since it can be 2.15-3.3% depending on the number of VA loans you have had. The VA loan currently qualifies for the lowest loan rate.

Cons:
If you plan on doing a slow flip or selling the house at the end of the tour. I do NOT recommend this loan. If your house is $300,000 to fund the loan it would cost $7,500-9,900 in order to use this  loan. So when you go to sell, you would have to recover this amount too.

VA requires the the seller to pay 1% of the funding fees. In a seller’s market this a strong negative. One can only increase the price so high because it needs to pass appraisal. Also, you are required to live in the house for one year before you can move out (some special allowances are available).

The Conventional Home Loan

• 5%, 10%, 15%, 20%
• Strongest loan type for a seller.

Pros:
This is my favorite loan if the VA loan is used or not applicable (seller’s market) because it’s only 5% down. The PMI falls off when you have the loan to value at 78%. This is perfect because you can lock in the low payment and then pay off the PMI either naturally over time or when it make sense.

Cons:
There is PMI and it is not 0% down as it is with a  personal mortgage. You’re required to live in the house for one year before you can move out (some special allowances are available).

The Conventional Second Home Loan

• 10% down.
• Higher interest rate than personal.
• Not allowed to rent out.

Pros:
This type of home loan is used to buy a vacation home.

Cons:
Most brokerage programs won’t allow you to rent out the house which means you have to cover both mortgages.

The Conventional Investment Loan

•  20-25% down depending on the number of houses in your portfolio.
• Allowed to rent easily.
• Highest interest rates.

Pros:
This is the type of home loan that you use for pure investments with no restrictions.

Cons:
There is a higher down payment amount.