Why I wouldn’t consider a government guaranteed mortgage
There are many different types of home loans, but broadly they can be divided into two different groups:
Both come from private lenders, but government guaranteed loans are insured or guaranteed by government agencies and include:
Government guaranteed loans can be a very good option for many home buyers. But when I applied for my own home loan, I knew there was no doubt that I would go with a conventional mortgage over a government insured loan.
Here is why I made this choice.
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My conventional loan came with more options and less fees
The main reason I went for a government guaranteed loan is because I am a qualified borrower. I have good credit, I had a 20% down payment on my property, and my debt ratio was not very high.
Because I was able to qualify for a conventional loan with a low mortgage rate, I was able to choose from more lenders than if I had hoped to get an FHA, USDA, or other government guaranteed loan. . This is because although many private lenders offer these insured loans, not all of them do. Having the largest potential pool of loan providers allowed me to shop around and make sure I got the best rates and terms.
Government guaranteed loans also come with higher 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 makes borrowing more expensive and increases your monthly payments. I was able to avoid these fees by finding a lender with minimal fees and paying 20% so I didn’t have to worry about mortgage insurance.
I realize that my situation is not that of everyone. FHA loans and other government guaranteed loans are great options if:
For people in these situations, these types of mortgages can be a lifeline that makes home buying affordable and within reach, even without taking years to improve your credit score or save a huge amount of money. money to deposit. And using these options can be a smart move to step up the property ladder and start building equity in your home, provided you are financially prepared for the costs of ownership.
The main thing to remember is to find the right loan for your particular situation. If you are a qualified borrower, that means looking for a different type of loan than if you are not necessarily the “perfect” client that lenders will be looking for. By choosing the right loan for you, you can get a mortgage that is as affordable and easy to pay as possible.