The type of loan you are using to purchase a home can make a big difference in your search, especially if you're looking to remodel or renovate after closing. But why?
VA and FHA loans are guaranteed by the government, and the government insures these loans in the event of a default by the borrower. Homes being purchased by a VA or FHA loan must meet minimum requirements as per the VA or FHA inspection, which are similar. The scope of these inspections ranges from examining the walls, ceilings and roof for conditions that could affect the integrity of the foundation or framing, to verifying the operation of the electrical, HVAC, and plumbing systems, to checking for cracked or peeling paint on the exterior of the home. Safety issues are also addressed, such as a working stove, no missing doors or missing stairs (or missing handrails on stairs) and no broken windows. If a home fails inspection, the home is eligible for re-inspection and subsequent approval once the repairs have been completed.
So if you're purchasing a home with a VA or FHA loan, you'll need to make sure your search is limited to homes that currently meet VA/FHA standards, or are being sold by Sellers who are willing to bring the home up to these standards. VA and FHA purchase eligibility will be noted in the listing, and your Realtor can customize your home search to filter out homes that are not eligible for purchase with your VA or FHA loan.
But what's the difference between a VA and an FHA loan?
VA loans are only available to eligible military service members and surviving spouses. VA loans require no PMI (private mortgage insurance) and no down payment.
FHA loans are available to anyone. FHA loans do not require PMI (private mortgage insurance) if the Buyer is making a down payment of at least 20% of the purchase price. FHA loans with less than 20% down require PMI, but Buyers can be approved for an FHA loan with as little as 3.5% down.
Conventional loans are not insured or guaranteed by the government in any way. They require a minimum of 20% down and are approved solely on the value of the property. That's not to say repairs may not be required, but that situation occurs when the value of the property would be dependent upon the completion of those repairs.
In addition to these programs, the USDA offers mortgages for rural areas, and FHA offers a 203K loan specifically for purchasing a home requiring renovation and repairs. Each of these programs also has eligibility requirements for the Buyer and the property.
Is the type of loan you're using to make a purchase important? Absolutely. But often folks will qualify for more than one type of loan. That's why communicating your needs and desires with your Lender, and your Realtor is key. Communication can help simplify and streamline your search for the type of home you want and the best way to buy it. And that's what's truly important!