There are a variety of different mortgages that are available for someone looking to purchase a property, however I’d like to break down the 4 different types of mortgages that has contributed to my success as a real estate agent and property investor.
(These mortgages are not listed in any particular order).
FHA Loan
These loans are backed by the Federal Housing Administration and are great for first-time home buyers or those without the best. FHA loans can be used for single-family homes, cooperative housing projects, some multifamily homes, and condominiums.
This loan is insured by the government which allows you to make a smaller down payment., the minimum down payment for an FHA loan is 3.5%.
Being that this mortgage comes with a low down payment keep in mind that you will have to pay mortgage insurance. You’ll pay the annual mortgage insurance premium (MIP) in monthly installments for the life of the FHA loan if you put down less than 10% of the down payment. If you put down a payment over 10% you will pay for mortgage insurance for about 11 years.
With an FHA loan you will be required to be an owner-occupant, which basically means you have to live at the property.
Types of People:
· Lower and middle class
· Credit as low as 580
· First time home buyer
FHA 203(K) Loan
This loan is identical with the FHA loan defined above; the only difference is that it can be used to rehab a home that is in need of significant repairs. In order to have any contracting funded you must hire a certified contractor and the bank will pay them directly.
In my opinion the FHA 203(k) loan is great for beginner investors, especially since it can be used on some multifamily units.
Types of People:
· Lower and middle class
· Credit as low as 580
· First time home buyer
· Beginner Investor
Conventional Type of Mortgage
A conventional mortgage is a bit more basic, it is a home loan that isn't backed by a government agency, such as the FHA. With this loan, you have the option to make a down payment anywhere between 5% to 20%. And if make a down payment of 20% you are not required to have mortgage insurance. I personally like this loan because you have the option to pay more now and have a lower monthly mortgage rate in the future. Also, with a conventional mortgage the bank requirements are not as strict as the FHA.
Types of People:
· Investors
· Purchasing a second property or more
· Middle class & higher
· Credit as low as 650
Acquisition and Rehab Loan
An Acquisition and Rehab Loan is a rehab mortgage that allows you to not only purchase a home but to cover the repairs and renovations that may be needed. With this loan, you will spend the rehab dollars first and then the bank will come to the property to inspect the renovations that have been made. Once the inspection is complete the bank will cut the check for the work completed. The timeframe on the rehab process generally takes 6 months to a year to be completed. During the rehab process, your payments will consist of interest only, in most cases.
With an acquisition and rehab loan, a 20% down payment is required.
Types of People:
· Investors
· Credit as low as 680
· If you’re your own GC (there are ways to make money through this mortgage)
As you begin the education phase of your real estate journey, I hope that I’m able to help you build a solid foundation with the knowledge you seek as you begin to invest. As I always state, you’re not going to learn EVERYTHING by reading articles, (even if they’re as informative as mine), however, I do aim to provide enough insight that can contribute to your overall learning phase, and steer you in the direction of asking the RIGHT questions.
If you have any questions or tips about mortgages leave your comment below!