• Braxton Bennett

Different Loan Types and How it Effects Buyers and Sellers.


First off, I am not a lender. I know the very basics of loans and am not a qualified to tell you details on loans. Here is what I know, that the loan type affects what homes a buyer can purchase. Let's review a few common loans and then review how it effects buyers and sellers. Please remember I am not a loan professional and any further questions about loan types should be directed toward a lender. (Just a reminder that I have a step by step guide of how to sell your home completely for free, click here)


Conventional - This is a standard loan program. This typically requires about 20% down payment. (There are lenders who have programs that can get a conventional loan lower, I've seen buyers with a 3% down) It has very little restrictions when it comes to property, it mostly requires for a the home to appraise at the contract value.


FHA Loan - This is a federally insured loan. It is insured by the Federal Housing Administration. This loan requires at least 3% down and has an income limit to qualify. It is for First Time Home Buyers. If you haven't owned a home in the last 3 years you qualify as a first time home buyer. This loan, since it is for first time home buyers, has some strict qualifications for a property to be eligible. Certain things an appraiser looks for as they determine the value of the home that they will call out. I don't have a list of requirements, but a couple items I've seen are; peeling paint, unsecured water heater, missing handrails, exposed floor boards. They basically look for large ticket items that make a home "unlivable"


USDA Loan - United States Department of Agriculture loan. It is also a federally insured loan. This loan has 0% down payment. It does limit a properties eligibility to rural locations. Here is the eligibility map. (https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=rbs ) All of Box Elder County is considered Rural making it easier for First Time Home Buyers to find homes here without needing a down payment. It has the same appraisal restrictions that FHA has.



VA Loans - Veterans Affairs Loan. This is for those who have served our country. This is a great loan. Low rates and doesn't require a down payment. I personally have never closed with a client on a VA loan so I don't have the personal experience with them but I do know they have a stricter appraisal process then FHA. I have not heard of it having geographic qualifications.


Land Loans - This is not a specific loan type, but to purchase land I have seen most lender require 20% down. I've heard of lenders only requiring 10% but I haven't run into one of those lenders yet. Tied with this, if you are purchasing to build a home you'll probably get a construction loan. Those are complicated and vary tremendously per lender. Generally you present your building plans and your budget and they loan you a percentage on that.


Jumbo Loan - This is basically a conventional loan but above a standard home value amount. That is typically determined by county. So you'll need to talk to your lender and find out if your home would require a jumbo loan. I do believe they have higher interest rates, but again that is something you'll need to check with a lender about.


I know there are other loan types, such as the Utah housing loan, but I do not know enough about that to share it with you.


So that is my basic understanding of loans but the next thing is how does that affect you as a buyer and as a seller. (yes loan types are important for a seller to know).


Buyer

This one is obvious. So if you already own a home, you wont qualify for any of the first time home buyer loans (FHA, USDA, Utah housing) You'll either be doing conventional or jumbo depending on your loan amount. If you don't own a home and haven't for the past 3 years. Then you'll be able to qualify for those first time home buyer loans. Depending on if you pick FHA or USDA that will limit where you can purchase. Also it will limit the home you can get because it will need to be in good enough shape to qualify. (If you can find a lender that does a conventional at 3% down do that over FHA.) So knowing what loan you are getting will help you in correctly vetting what homes your tour and not be wasting time.



Seller

How does loan type effect a seller. It's all about marketing. So to get the most market exposure for your property and up your chances of receiving multiple offers, you need your property to qualify for as many loan types as possible. When marketing it is disclosed what loan types your property could potentially qualify for. You want to qualify for all of them so you don't limit what buyers come to your home. If that means you doing some minor repairs to get your home to match those qualifications... do it. It will help incredibly. Especially if you are in the first time home buyer's price range. Also knowing that information will help as you are reviewing offers. You should (if your agent has properly vetted the offers) know what loan type they are so then that will help as you see any potential pit falls for the future contract (if it doesn't appraise, if it will require repairs, if it is eligible) It is important for a seller to be aware of these details to get the most money out of their property.


That is it! I'm sure I missed some things, but there is a crash course in loan type and why you should know them. If you have any questions or need some clarifications, don't hesitate to contact me.


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