Mike May, Realtor 804.731.0111 Mike May, Realtor 804.731.0111
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Chesterfield VA Real Estate Loans

Different Types of Loans - A Basic Guide

So many homebuyers in the areas of Chesterfield and Dinwiddie counties are searching real estate listings for their perfect home for sale, and they will find that this area of Central Virginia has no shortage of beautiful, well-priced homes! However, it can be a bit confusing—and sometimes, overwhelming—to navigate the home buying process; one of the most common worries that homeowners have is over how to finance such an important purchase. In order to help alleviate some stresses that you may be having about this subject, we have put together a short list of some of the most common types of loans, briefly explaining what they are and what they do. After all, buying your family’s next home is an exciting time, and you shouldn’t feel anxious or stressed out! Due to the vast amount of loans available, it is best to make sure to do your own extensive research when determining which is right for your next real estate purchase.

Real Estate loan types for chesterfield county real estate buyers

USDA Loans

One of the most popular types of loans these days seems to be U.S. Department of Agriculture (USDA) loans, also called Rural Development Loans. These are loans that are insured by the U.S. Department of Agriculture and are intended to improve the economy and way of life in rural America. USDA loans require no money down for qualified home buyers, making them extremely popular with those with less than a 20% down payment. Also, these loans enable the buyer to finance the closing costs at signing, making them especially popular with first-time homebuyers. USDA loans have fixed, competitive interest rates. To be eligible for a USDA loan, household incomes must meet certain guidelines, and buyers generally need to have a medium credit score around 620. Also, the home being purchased must be located in an eligible rural area as pre-determined by the USDA. Lastly, buyers must have proof of income for the last two years, as well as be able to demonstrate loan repayment ability. Unfortunately, buyers looking to purchase a second home, or anything deemed an “adequate property”, generally do not qualify for USDA loans.

FHA Loans

FHA loans are Federal Housing Administration insurance-backed mortgage loans provided by a FHA-approved lender. The program was created in the 1930s during the Great Depression and was originally intended to provide lenders with sufficient insurance. Today, however, FHA loans are a type of government assistance and allow lower-income American families to borrow money for the purchase of a home that they may not otherwise be able to afford. Buyers who cannot afford a down payment or do not qualify for private mortgage insurance (PMI) may also qualify for a FHA loan. There are a few things that interested homebuyers should know about when trying to obtain FHA loans, one of which being that individual lenders set their own rates and terms, so comparison shopping is extremely important when trying to secure this type of loan. Also, a borrower’s debt-to-income ratio may be analyzed for risk by potential lenders. Additionally, a mortgage insurance premium (MIP) equal to 1% of the loan amount is required at closing, which is normally financed by the lender and paid on the borrower’s behalf, and there may be a monthly premium based on a loan-to-value ratio.

VA Loans 

VA loans are mortgage loans guaranteed by the U.S. Department of Veteran’s Affairs, or the VA, and began as part of the Servicemen’s Readjustment Act (or GI Bill) of 1944. These loans are meant to provide long-term financing to eligible American veterans and their families, particularly in areas where private financing is generally not available, such as rural areas and small cities. VA loans do not require down payments, and as long as the borrowing vet pays back their current loan, they may reuse their VA entitlement repeatedly. These loans are not issued by the VA but rather by private lenders like banks, savings and loan and mortgage companies, and are guaranteed by the government in order to protect lenders should the buyer not be able to repay the loans. VA loans were designed for single family homes in move-in condition, so buyers looking to purchase, let’s say, a working farm may not qualify. As the VA determines the eligibility of an area for VA loans, it is best to do your own research when considering a VA loan to finance your next real estate purchase in Chesterfield County.

VHDA Loans

The Virginia Housing Development Authority, or VHDA, is a quasi-government agency that was created by the Commonwealth of Virginia in the mid 1970s in order to help Virginians attain quality, affordable housing. Every year, the VHDA updates its strategic plan and objectives in order to meet the state’s most critical housing needs, which include increasing affordable housing opportunities for low- and moderate-income households, underserved minority populations, those with disabilities and the frail and elderly. The VHDA has a variety of loan programs available, including those for homebuyers, homeowners, veterans and members of the U.S. Military, renters and business partners. Visit www.vhda.com for more information regarding the agency’s multitude of available programs.

Conventional Loans

This type of loan simply refers to any mortgage loan that is not insured or guaranteed by the federal government. These loans can be either fixed mortgages or adjustable-rate mortgages and either conforming or non-conforming. Because of the great variety of conventional loans, it is best to do your own extensive research in order to determine which, if any, type of conventional loan is best suited for your next real estate purchase in Chesterfield County.