Last Updated on March 24, 2021 by Maggie Sutton
While on your search for the perfect home, you’ll need to consider how you’re going to afford the home once you find it. There are several different types of home loans for nurses you can choose from. They all have great advantages for first time home buyers and nurses who have already bought and sold more than one home. Let’s take a deeper dive into the four most common type of home loans for nurses.
But, before we get too deep into the types of mortgage loans available to nurses, we recommend determining how much house you can afford first. Knowing some of these numbers will help you determine which home loan type could be best for you. This mortgage calculator is also a great tool to estimate your monthly mortgage payment. Once you know what you can afford, we can cover the four main types of home loans: Conventional loan, FHA loan, USDA loans, and VA loan.
As a nurse, chances are you qualify for more than one type of home loan. Our Homes for Heroes mortgage specialists will work with you and your finances to determine which home loan type will work best for you. Sign up now to talk to our specialists with no obligation.
# 1: Conventional Loan
Conventional loans are the most popular home loan, with more than 50% of mortgages being conventional. Because they are less restrictive, there are a fewer number of required fees, and fewer terms to qualify make this a popular home loan program, especially for nurses. Conventional home loans are not backed by the federal government like the other loan types we will cover. Instead, conventional loans follow guidelines set by two private agencies, Freddie Mac and Fannie Mae.
Benefits of a Conventional Loan:
- Home buyers will typically receive a lower interest rate due to the credit score and down payment minimums.
- There are no upfront funding fees.
- There is a higher loan amount limit than with government backed loans.
- Your down payment can be as low as 3% of the purchase price.
Disadvantages of a Conventional Loan:
- Generally requires a credit score of 620 or higher.
- If you down payment is lower than 20%, you’ll need to pay Private Mortgage Insurance (PMI).
- Guidelines can vary from lender to lender, because they are backed by private institutions than can set their own terms instead of the government.
Also, conventional home loans for nurses typically come with 30-year or 15-year duration term. This means by making the required payments each month, you will finish paying off your loan in that amount of years. When it comes to the interest rate options on these loans, there are two main types: adjustable-rate mortgage and a fixed-rate mortgage.
Adjustable-Rate Mortgage (ARM)
With an adjustable-rate mortgage (ARM), the interest rate you pay will change after a certain period of time. Initially, your interest rate will remain the same for 3-10 years. The exact length of time will vary between lenders. This initial interest rate is referred to as the “fixed-rate period.” The interest rate during this fixed-rate period is almost always lower than entirely fixed-rate mortgage interest rates. This makes adjustable-rate mortgages attractive to buyers who don’t plan to stay in their house for the long-term.
After the fixed-rate period ends, your interest rate will adjust based on the current market interest rate. This means your interest rate could increase, or go down, based on the overall financial market. However, the changing interest rate is why ARMs present a risk to buyers and make budgeting difficult. Increased regulations following the housing crisis made most adjustable-rate mortgages come with a cap on how high your interest rate can increase in a given year.
Either way, the rate will continue to adjust based on a schedule predetermined in your loan agreement. Your mortgage lender will walk you through all the dates and terms for this home loan if it’s the best option for you.
With a fixed-rate mortgage, your interest rate will stay the same over the life of the loan. This makes it much easier to plan your monthly budget. Most people choose a fixed-rate mortgage. However, if you don’t plan on being in your home long term, an ARM might be a better option.
#2: FHA Loan
FHA Loans are government-backed loans, issued by the Federal Housing Administration. A government-backed loan means that if the borrower can not pay their mortgage off and the house goes into forbearance, the government will pay the bank bank for the rest of the loan, and then take ownership of the home. This applies for all the following loan types, which are all government-backed.
FHA loans help increase homeownership in America by reducing credit score requirements for home loans. Nurses and others with lower credit scores also can qualify for these loans, thanks to Mortgage Insurance Premiums (MIP) and the Upfront Funding Fee. Their low down payment requirement is also an attractive benefit of these loans. FHA loans are popular with many first-time home buyers for these reasons.
Benefits of a FHA Loan:
- Nurses with a credit score of 580 or higher can qualify for a FHA loan. Scores as low as 500 can be accepted, although the down payment will need to be higher.
- Home buyers can put down as little as 3.5% for a down payment. If nurses have a credit score of 500-579 they may still qualify for an FHA home loan if they are able to put down up to 10% for a down payment.
- Closing costs can sometimes be rolled into the mortgage payment, meaning you’ll pay less up front in a large chunk.
Disadvantages of an FHA Loan:
- Those who go with a FHA home loan will need to pay a Upfront Funding Fee when you go through the closing process. This fee is 2.25% of the total financed amount. This is extra insurance for the government to assume the risk of your loan. Usually, this can be rolled into your mortgage however, or you can pay it at your closing.
- All FHA loans must include Mortgage Insurance Premiums (MIP) for the life of the loan. MIP protects the mortgage lender in case you are unable to pay the loan back. This insurance is a big reason why home buyers with lower credit scores and less cash to put down for a down payment still have the ability to purchase a house.
Generally, an FHA home loan for nurses will cost a home buyer more money over the term of the loan versus a conventional loan, VA loan or USDA loan due to the higher interest rate and MIP costs. However, it still makes homeownership possible for someone with lower down payment funds or credit scores.
#3: USDA Loan
Although they’re named after the U.S. Department of Agriculture, USDA loans are not just for farmers. USDA loans are intended for rural development. But, even many small towns and suburbs of metropolitan areas qualify as rural with these home loans. These home loans for nurses can be very beneficial, as there are demand for nurses in rural hospitals nationwide. If you live in or are moving to a more rural area anyways, you might as well take advantage of these loans!
USDA loans are available for households and/or properties located in designated rural areas that meet all of the eligibility requirements:
- Home buyer must meet income-eligibility. The USDA loan is intended to make homeownership a reality for low to moderate income families in rural areas. The USDA’s low to moderate income guidelines vary by state.
- Home buyer must personally occupy the dwelling as their primary residence.
- Home buyer must be a U.S. Citizen, U.S. non-citizen national or Qualified Alien.
- Must have the legal capacity to incur the loan obligation.
- Must not have been suspended or debarred from participation in federal programs.
- Demonstrate the willingness to meet credit obligations in a timely manner.
Benefits of USDA Loans:
- There is an option to have no down payment.
- The loan terms offer competitive interest rates.
- Flexible credit guidelines with no minimum credit score. But, most lenders prefer a credit score of 640 or higher. This will vary by lender.
- Available in common fixed-rate terms like 30-year and 15-year loans.
Disadvantages of USDA Loans:
- There is an Upfront Funding Fee, up to 1% of the total financed amount, paid when you close on the loan. Typically this can be rolled into your mortgage payment.
- There is an annual fee, which is 0.35% of the loan. This can also be rolled into your monthly mortgage payments.
- Must meet all the above USDA loan requirements to qualify.
- Must pass a strict inspection of the home. This is to ensure the home is suitable for living, making it less likely you will go into default. If the home has termites, for example, the odds the house could become structurally unsafe go up along with the possibility the house becomes uninhabitable.
#4: VA Loan
Of all the types of home loans, VA loans are designed exclusively for active and former military members and their families. Several service members who conducted medical duty while they were in the service continue their medical training and careers as civilians. Backed by the U.S. Department of Veterans Affairs, these loans offer great advantages to those who are serving, or who have served in the U.S. Armed Forces.
To get a VA loan, you will need to show your lender a Certificate of Eligibility (COE). This shows your lender that you have double checked with the VA and they approve that you meet the requirements of obtaining a VA loan. The primary criteria to qualify is you must have served in the US military for 90 days of active duty during war time, or 181 days of active duty during peace-time, or you are a surviving spouse of a military member who has also not remarried.
Benefits of a VA Loan:
- No down payment is required, as long as the sale price doesn’t exceed the appraised value.
- No Private Mortgage Insurance (PMI) premiums.
- There is a limited on closing cost charges, and closing costs may be covered by the seller.
- Interest rates are consistently lower than conventional loans and FHA loans.
- Your lender cannot charge a penalty fee if the VA loan is paid off early.
- You do not need to be a first-time home buyer to secure a VA loan, and you can re-use the VA loan for future home purchases.
- The VA may provide some assistance if you run into difficulty making mortgage payments.
Disadvantages of a VA Loan:
- You must meet VA loan requirements to qualify.
- VA charges a funding fee to cover operating costs. However, this fee is usually rolled into the home purchase price.
- Your lender may have additional requirements borrower must meet to take out a VA loan. Because the VA only guarantees 25% of a loan, lenders will typically have additional requirements. Be sure to discuss any additional requirements with your lender.
No matter what type of home loan you choose, Homes for Heroes can save you money on your next home purchase. A hero working in the healthcare, law enforcement, military, firefighter, EMS, or teaching professions are eligible. Register with no obligation and you’ll be automatically matched with a real estate and mortgage specialist in your area. They will be with you every step of the way, taking the time to explain the process and answer any and all of your questions. Heroes who use our specialists to buy a home save an average of $2,400 in the process. It’s our way to say thank you for your service.