How to Choose a Loan Program
Which Loan Program Should I Choose?
Does the idea of deciding on a home loan make your head spin? You may have questions like these:
- Why would someone choose a Rural Development loan (USDA) over a Conventional Loan?
- Why did my other lender tell me the VA loan isn’t the best option for me?
- What are my options if I have a low/no down payment?
- Which loan program should I choose if I want to buy a condo?
- How do I know if I can trust my Loan Officer?
At Residential Mortgage Network, Inc., it doesn’t matter to us financially or procedurally which loan program you choose. We truly have your best interest at heart. We don’t have any reason to guide you towards one program over another, except that we really believe it’s the best option for you. Unlike most lenders, we have the required authority to underwrite and approve all loan types on our own. Because of this, we are able to process and close all loans in four weeks regardless of loan program.
Our staff has vast expertise of the different regulations and documentation requirements for each of these 4 programs. This allows us to immediately confirm your eligibility at the time of pre-approval and communicate all required documentation upfront to ensure there are no surprises down the road. Many lenders don’t have the underwriting capability or aren’t knowledgeable about all 4 loan programs. As a result, other lenders will often discourage some of these loan options, usually citing reasons that are simply untrue.
Below is some basic information to consider about each of our 4 loan programs:
If you are an eligible veteran, the VA loan program will almost certainly be the best option for you in every situation. VA offers fixed rate financing up to 100% of the sales price (no required down payment!) at a below market interest rate that is sometimes half a point better than Conventional. VA loans have no monthly mortgage insurance. You may have to pay a small VA Funding Fee; however, some veterans are exempt from the fee if they have a 10% or greater service-connected disability.
VA loans generally allow for a higher debt ratio which means veterans can qualify for a higher purchase price. VA loans are not bad credit loans, but there is usually some leniency for minor credit glitches. The biggest perk? Many veterans are eligible for the $5,000 VA grant. This program comes with no strings attached and any eligible homebuyer should take advantage of it regardless of circumstance.
Next to VA, Rural Development will usually be the best option for you if the program eligibility requirements can be met. Like VA, RD has no required down payment and offers 100% fixed rate financing at a below market rate. Rural Development has household income limits that vary by county. In addition, the RD program requires that the property be located in an eligible area.
For instance, anything within the city limits of Iowa City, Coralville, Marion, or Cedar Rapids would be ineligible. However, the area doesn’t have to be quite as “rural” as you might think. For instance, the entire cities of North Liberty, Tiffin, Washington, Center Point, Newton and Grinnell are all eligible. Please reach out to RMN if you are unsure on your household income eligibility or whether a property is located in an approved area.
Also, much like VA loans, some lenders that don’t understand the program try to scare buyers by telling them the USDA Rural Development PMI is expensive, when in reality, it’s not! The Guaranty Fee is a 1% fee added (financed) into the loan plus a small monthly fee that reduces as you pay down your loan balance. When compared to a Conventional loan at a higher rate (and often a higher PMI) it is much more competitive and inexpensive.
RMN offers fixed rate conventional financing with as little as 3% down payment. Conventional financing is a great option to help you avoid PMI if you plan to put down 20% or more. If you prefer a smaller amount of down payment, a Conventional loan allows you to take advantage of your strong credit score and pay a reduced PMI rate. Another great program feature is that you can terminate your PMI once you reach 20% equity in your home.
FHA allows as little as 3.5% down payment and has no restrictions on property location. Just like VA and RD, FHA offers a fixed, below market interest rate. Compared to Conventional financing, FHA has more lenient credit standards and FHA mortgage insurance rates do not fluctuate based on credit score. Depending on credit score and down payment preference, FHA can often be your best financing option. The FHA loan program also allows for assistance from Iowa Finance Authority such as the FirstHome Program or Homes for Iowans.
The FirstHome and Homes for Iowans Porgrams both provide homebuyers with a $2,500 grant to help with down payment and closing costs. The difference between the two? The Homes for Iowans Program is available not only for first time home buyers but also for repeat home buyers to purchase a home in Iowa.
Iowa Finance Authority also offers a 2nd loan if the homebuyer would benefit from it more than the grant. This would provide them with additional funding of 5% of the home’s value or $5,000, whichever is less.
You can finance with a fixed rate mortgage for a condominium with a VA loan a Rural Development loan, or a Conventional loan if the condo project meets program requirements. The majority of condo projects in our market meet the requirements and are eligible for approval. The lender you’re talking to needs to understand how you can get those condo projects approved, and they have to have the authority to submit them for approval.
If you find a condo that you love, reach out to us first to find out if the project is already approved! If it is not, we will need some additional paperwork from the Home Owner’s Association. RMN has gotten hundreds, if not thousands, of condos approved all over the state of Iowa including Iowa City, Cedar Rapids and surrounding areas. We understand how to approve the condos and how to fit the process into our timeline so that we do not miss any deadlines.
These are just some of the basic features of our loan programs. Please remember that each of these programs is available to both first time and repeat home buyers. RMN’s loan originators will take the time to walk you through each option in detail and help you select the loan program that best suits your circumstances.
Contact Residential Mortgage Network today to get started!
Editor’s Note: This post was originally published in February 2018 and has been completely revamped and updated for accuracy and comprehensiveness.