If you're looking for a mortgage, the best approach before house hunting is to put some time into deciding how much home you qualify for, what you are comfortable with, and then get pre-approved. A good mortgage broker or lender will guide you through all the different programs and options.
Here are some basics on the most common loan types and some other less obvious sources of funding:
Fixed or adjustable-rate mortgages that are not insured or guaranteed by the federal
government. Although they are the most difficult to qualify for due to their requirements
such as down payment, credit score and income, certain costs, such as
private mortgage insurance, can be lower than with other guaranteed mortgages.
The Federal Housing Administration (FHA), part of the U.S. Department of Housing and
Urban Development, provides various mortgage loan programs. An FHA loan has lower
down payment requirements and is easier to qualify for than a conventional loan. FHA
loans are excellent for first-time home buyers because in addition to lower upfront loan
costs and looser credit requirements, they allow down payments of as low as 3.5%.
The U.S. Department of Veterans Affairs (VA) guarantees VA loans. The VA does not
make loans itself, but guarantees mortgages made by qualified lenders. These
guarantees allow veterans and service people to obtain home loans with favorable
terms, including zero down, and in most cases they are easier to qualify for than
Home Equity Loan
You or family members may have a considerable amount of equity built up in a home
already that can be used for an upcoming purchase.
Company Profit Sharing or Savings Plan
Check with your employer to see about the possibility of withdrawing or borrowing from
what you have in your accounts.
Retirement Savings Plan (401k)
If your employer offers this type of plan in place, inquire about the possibility of
withdrawing or borrowing from this account as well.
First-time Buyer Financing
If you have not held title to real estate in the past three years, you could qualify as a
first-time buyer, which could mean special financing from your state or local housing
agency. This usually means a smaller down payment or a lower interest rate, and in
some cases both.
Family members and partners may have funds available to be used toward a down
payment and/or closing costs.