What You Should Know About Financing a New Home
When you’ve made the decision to build a new home, you’re probably more focused on the exciting process of choosing all your design elements, rather than on the practical matters of how you’ll be paying for the home. However, you do need to spend some time considering the process of financing a new home in Pennsylvania.
In general, it’s always advisable to pay as much money as you’re reasonably able to up front, so you can significantly cut down the amount of extra money you’ll have to pay in interest over time. As for the kind of financing you use, there will likely be several options you may or may not qualify for, depending on your financial situation. Read on for a quick overview of some of those options.
Conventional loans
Far and away the most common type of arrangement for financing a new home purchase or construction, conventional loans are offered by banks and credit unions and vary greatly based on the buyer’s needs. You’ll generally need to have a bit more money to put down and a higher credit score than some other options on this list for the bank to be comfortable with you as a borrower, but you’ll be able to get lower interest rates as a result. You’ll need to put between three and 20 percent down, and if you put 20 percent or more down, you can eliminate PMI responsibilities.
PMI refers to “private mortgage insurance,” a type of policy that protects the holder against losses from the property owner defaulting on their mortgage loan. These requirements help to guarantee the lender will at least get a particular percentage of loan value back, whether it’s from proceeds at a foreclosure auction or from the PMI itself.
FHA loans
A Federal Housing Administration (FHA) loan is a popular financing choice for first-time homebuyers, because it has low down payment and credit score requirements. You only need a FICO score of 580 or higher to qualify, and you can get away with a down payment that is as little as 3.5 percent of the price of the sale. Now, as to whether or not it’s truly advisable for you to purchase a home in such a situation, that will vary from person to person, and it’s a good idea for you to consult with a personal finance expert before making a decision.
VA loans
The U.S. Department of Veterans Affairs offers loans to current and former service members. If you qualify, it will give you some of the best rates available. You’re not required to put any money down, don’t have to worry about PMI and, if you sell the property, the loans are assumable. You can get a significant amount of funding from VA loans, as well.
These are easily the three most common options for financing a new home in Pennsylvania, but you will have other options available to you. When you’re getting prepared to start new home construction, we encourage you to carefully investigate your options and determine which will be the best path for you moving forward. Contact WSL Incorporated to learn more.