In my situation, a better deal was available.
There are many different kinds of home loans available, but they can be broadly divided into two different groups:
- Conventional loans
- Government-backed loans
Both come from private lenders, but government-backed loans are insured or guaranteed by government agencies and include:
Government-backed loans can be a really great option for many home buyers. But when I applied for my own home loan, I knew that there was no question that I would be opting for a conventional mortgage instead of one that was insured by the government.
Here's why I made this choice.
My conventional loan came with more options and less fees
The big reason why I opted out of a government-backed loan is that I am a well-qualified borrower. I have good credit, I had a 20% down payment to put down on my property, and my debt-to-income ratio wasn't very high.
Because I was able to qualify for a conventional loan with a low mortgage rate, I was able to choose from a wider pool of lenders than if I'd hoped to get an FHA, USDA, or other government-guaranteed loan. That's because while many private lenders do offer these insured loans, not all do. Having the broadest potential pool of loan providers enabled me to shop around and make sure I was getting the best rates and terms.
Government-backed loans also come with more upfront costs and fees. For example, FHA loans generally require that you pay mortgage insurance premiums up front when you get your loan and also pay these premiums on a monthly basis. This serves to make borrowing costlier and raises your monthly payments. I was able to avoid these fees by looking for a lender with minimal charges and putting down 20% so I didn't have to worry about mortgage insurance.
I realize that my situation isn't everyone's situation. FHA loans and other loans guaranteed by the government are great options if:
- You don't have great credit
- You are buying a home with a small down payment
- You have a lot of debt
- You're a first-time home buyer, and you need a loan that's easy to qualify for
For people in these situations, these types of mortgages can be a lifeline that makes buying a home affordable and within reach even without taking years to improve your credit score or save up a huge amount of money to put down. And using these options can be a smart move to get on the property ladder and start building equity in your home, as long as you're financially prepared for the costs of ownership.
The key thing to remember is to find the right loan for your specific circumstances. If you are a well-qualified borrower, this means looking for a different kind of loan than if you aren't necessarily the "perfect" customer that lenders will look for. By choosing the right loan for you, you can get a mortgage that's as affordable and easy to pay as possible.
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