Sacramento Home Loan Types: Which Option Is Right for You?

In 2019, the number of first-time homebuyers hitting the market surged for the first time in a decade. And in 2020, those numbers increased even further.

Are you tired of renting? Buying a home is one of the best investments you can make. Each monthly payment lowers your debt, increases your equity, and builds your long-term wealth.

Yes, home prices are rising. But there are still options for those looking to purchase their new Sacramento home. Different types of mortgages are available to help you buy a home, regardless of your financial situation.

Ready to finally find your dream house? Read on to discover what types of home loans are available for Sacramento buyers, and which is best for you.

Conventional Loan

For decades, homebuyers utilized conventional home loans to acquire their primary residence. Today, they are still a popular choice, as the process of qualifying for a conventional loan is straightforward, and interest rates on conventional loans are among the lowest available.

Conventional mortgage loans have traditionally required a 20% down payment. But lenders are becoming more and more flexible, so it’s possible to get a conventional loan with as little as 5% or 10% down.

Those who are able to put 20% down prefer to do so, to avoid paying mortgage insurance.

To qualify, you’ll want to ensure you have at least two years of consistent employment history. There are also stricter requirements when it comes to your credit score and debt-to-income ratio (DTI).

Get Your New Sacramento Home With an FHA Loan

Repeat homebuyers are more likely to utilize a conventional loan. That’s because selling a home means capturing any equity you have in the property, helping to cover the cost of a larger down payment.

But first-time homebuyers, especially in today’s market with rising home prices, struggle to save up money for a down payment.

Luckily, there are government-backed programs available to help first-time homebuyers get a new home loan, without requiring a large down payment.

FHA loans are among the most popular for first-time buyers. With an FHA loan, you can put as little as 3.5% down, as opposed to the traditional 20%. The funds can be gifted from approved sources, such as family members.

There may also be an option to roll some of your closing costs into the home loan as well, lowering the amount of money needed upfront. FHA loans allow for those with lower credit scores to qualify as well.

While the program is geared towards first-time buyers, you don’t have to be a first-time buyer to qualify. There are no income limits and no cash reserve requirements.

VA Home Loan

Those who have served in the military, or are currently serving, may have access to one of the best home buying programs available. VA home loans are also backed by the US government.

They are only available to those with a Certificate of Eligibility (CoE), meaning they have met active duty service requirements. This applies to military service members, as well as those in the National Guard or Reserves. Surviving spouses of veterans may also qualify.

With a VA loan, veterans can buy a home with no money down. They can finance 100% of the purchase price, and in many cases, the closing costs, into the loan.

On top of that, you don’t need to have any cash reserves either. As long as you plan to occupy the home, you can get a loan with very little money down.

Jumbo Loan

Most mortgages in the US are sold to either Fannie Mae or Freddie Mac, rather than held and served by your initial lender. In order for Fannie or Freddie to purchase your mortgage, they need to meet certain conditions.

One of these is the conforming loan limit. In most of the country, including the Sacramento area, a mortgage needs to be $647,200 or less to qualify, as of 2022.

Any mortgage that finances more than the conforming loan limit is considered a jumbo loan. These can’t be sold to Fannie or Freddie and are serviced by the lender.

Jumbo loans are intended for luxury properties. They come with unique and strict underwriting requirements, which can vary from lender to lender. Usually, lower down payments are acceptable, though DTI and credit score requirements are very strict.

Bank Statement Loan

Most people obtain a qualifying mortgage loan. But not all people buying a home fit into the requirements necessary for a qualifying loan.

Many business owners and self-employed individuals can’t always document income the same way that traditional employees do. In these instances, borrowers can utilize a bank statement loan, which is a type of non-qualifying mortgage (non-QM).

While typically borrowers provide their W2s and tax returns, you don’t need those for a bank statement loan. Rather, you prove your income by showing your monthly bank statements.

This is helpful for people who have multiple sources of income or inconsistent income, such as freelancers.

While bank statement loans open up the doors to many who wouldn’t normally qualify for a mortgage, there is a small price to pay. Interest rates will be higher. And you’ll need cash reserves to cover a few months of mortgage payments.

Down payment requirements vary by lender and can range from 5% to 20%.

Investment Property Loan

Looking to start building wealth through real estate? Most real estate investors use mortgages to finance their properties, rather than pay with cash.

Investors often use conventional mortgages to finance their rental properties. They function in much the same way as loans for a primary residence, but with tighter requirements.

Down payments will need to be at least 20%, and you’ll also want to have cash reserves on hand.

You can also get a bank statement loan for a rental property, which is often what experienced investors do when looking to grow their portfolio quickly.

Buying Your Sacramento Dream Home

If you dream of buying your first, or next, Sacramento home, then there’s a home loan available for you. We offer all of the programs above to help nearly any aspiring homeowner get the key to their first house.

Not seeing a loan that looks right for you? Contact us today and we’ll recommend the perfect option for your unique financial situation.