4 Benefits of Buying a House Using Traditional Financing
By Alex Capozzolo
When you’re purchasing a home, whether it’s your first or your third, you’ll likely have to consider various financing options. It doesn’t matter what stage of life you’re in. Very few people can afford to pay for a home in cash. That’s why having the opportunity to finance a home is vital to the real estate industry. It ensures that hard working Americans are able to own their homes, even if it means temporarily taking on debt to achieve that.
Securing a loan is no simple task. You’ll first have to do a lot of research in order to figure out what type of loan best suits your specific needs. There are many financial institutions that offer “traditional financing” in the form of mortgages. However, you might also opt for a government loan that’s backed by the Federal Housing Administration (FHA). Both options have their benefits, but for most people, a traditional loan from a reliable financial institution makes the most sense in the long run.
Here are 4 benefits to purchasing a house using traditional financing.
An FHA loan may seem more attractive at first for a number of reasons. One of those reasons is that it requires a much lower down payment, making it more accessible for the average American to purchase a home. However, this typically means that financing rates will be higher than a traditional mortgage.
A traditional mortgage will require you to put down more money upfront, but over time you can save up to tens of thousands of dollars. Also, an FHA loan might require insurance payments be rolled into your mortgage payments. A traditional loan allows you to choose your own insurance options, which gives you more flexibility when selecting one. Overall, having more equity in your home from the outset is better for your financial health, and will make things simpler if you eventually decide to sell your house.
Speed of the Transaction
If you’ve ever purchased a home, you know that time is of the essence. Putting in an offer and having financing secured on time could mean the difference between getting the home of your dreams and missing out on it entirely. This is why traditional loans might be more beneficial. FHA underwriting is a bureaucratic process that could take more time than you have.
It might also require an inspection of the property prior to securing the loan. This is where the speed of the transaction can slow down dramatically. The reason that banks do this inspection is to ensure that the house being purchased meets certain requirements, and is not completely falling apart. They assume that if a person is using an FHA loan, they may not have a ton of liquid cash on hand. The last thing a bank wants to do is foreclosure on a house. They are not in the business of owning real estate, they are in the notes business.
A bank could deny financing to an FHA loan borrower if the property is in bad condition. They don’t want first-time homeowners to get overwhelmed by expensive renovations. This could cause financial pressure if they cannot afford the repairs, and can lead to other issues down the road. For all of these reasons, it’s much quicker to secure a traditional loan, which could help you in a competitive home buying situation. There are less requirements by the bank, which gives homeowners more flexibility on the types of properties they can purchase.
Favorable Lending Terms
Traditional financing from lenders can offer you more options than a federally backed loan. This allows you to build a financing plan that’s tailored to your needs. There are typically more lending products available for basic, tradition financing of a house. For example, these terms can be more favorable when using tradition financing versus an FHA loan:
- Down Payment
- Interest Rates
- Term Length
- Options to move any time
Overall, there is much more flexibility using traditional financing. With a government loan, you’ll likely be backed into a one-size-fits-all solution.
Locking in Interest Rates
If you go down the path of traditional financing, you’ll likely be looking at a fixed rate. That means your monthly payments will remain the same for the life of your term, no matter what happens to interest rates. A traditional loan ensures that you’re able to make payments no matter what state the economy is in.
Traditional financing is common for a reason. In many cases, it’s cheaper, faster, and overall more flexible than a government loan. However, no two people are the same. Make sure you explore all of your financing options before you decide on which one makes the most sense for you.
Alex Capozzolo is the owner of the Home Offer Solutions blog, a member of San Diego Creative Investors Association and a content writer for the real estate industry. Alex’s focus is on helping people through one of the most important investment decisions of their lifetime by seamlessly providing fast, honest, and professional real estate services.
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