How Three Government Loans Make Homeownership Possible for Little to No Money Down
Buying a home is a step that most adults want to take, but it is also a step with high costs that keep getting higher as time passes. When buying a home, it is essential to understand the home buying process. Unfortunately, not everyone has the time to take a class on home buying 101 to know how it is possible to buy a home while also saving money.
Thankfully, Government guaranteed home loans exist, and because the United States Government guarantees them, they can be more lenient when it comes to applicants meeting their eligibility requirements.
There are three different government mortgage loans, all of which offer incentives depending on who the applicant is. The Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA), and the Department of Veteran Affairs (VA) administer these loans, which offer significant benefits, making them increasingly more appealing for home buyers.
Federal Housing Administration Home Loans
Loans that the FHA administers are perfect for first-time homebuyers who might not have the best credit score or who might not have the money saved up to pay for a 20% down payment. FHA loans also have several benefits that make these types of loans the best loans for homebuyers who have never owned a home before. These include benefits like:
- 3.5% down payment.
- A credit score of 580.
- Lower closing costs.
- Lower monthly mortgage payments.
FHA loans are available in both a 15 year and a 30-year fixed-rate mortgage. Additionally, FHA home loans also allow applicants who have recently gone through bankruptcy the opportunity to become homeowners.
Applicants who have gone through a Chapter 7 bankruptcy can qualify for an FHA loan as long as they are two years removed from their bankruptcy discharge dates. Also, applicants who have gone through a Chapter 13 bankruptcy can get a home loan as long as they are one year removed from their discharge dates and have court approval.
However, FHA loans are still required to adhere to county loan limits which change depending on the living costs for specific counties.
U.S. Department of Agriculture Home Loans
USDA home loans are meant to populate rural communities by helping applicants who are considered low-income to achieve the dream of homeownership. These loans are outstanding for lower-income applicants who would have otherwise not been able to take out a loan to purchase a home. As a result, several benefits are available for people who are eligible for USDA home loans. These benefits include things like:
- $0 down payment requirements.
- Lower closing costs.
- Competitive interest rates.
- Flexible credit score requirements.
USDA loans also allow people who have gone through bankruptcies to become homeowners, just like FHA loans. Although, unlike FHA loans, Chapter 7 recipients must wait three years from their discharge date. These can go down to one year by using the “USDA Exceptional Circumstances Exemption.” However, it requires the applicant to prove that their bankruptcy was due to an extenuating circumstance like job loss or illness by providing paperwork evidence.
Home loans administered by the USDA are for the purchase of a modest single-family home that does not have any health or safety hazards. The home must be within a rural development area. It must also adhere to the county loan limits, which for most of the country is at $285,000.
Department of Veteran Affairs Home Loans
The VA’s government loans are meant exclusively for Veterans, Active Duty Service Members, and eligible spouses. However, there are additional eligibility requirements needed to qualify for the loan. These eligibility requirements include income, service, credit score, and property requirements to be completed.
These loans are considered by many as the best home loans available for the purchase of a home. Primarily due to the benefits that these loans provide those who use them, which include:
- $0 down payment requirement.
- Lower monthly payments.
- No pre-payment penalties.
- Low-interest rates.
Active Duty Service Members who are currently receiving their Basic Allowance for Housing (BAH) can use their monthly allowance to qualify for a VA loan. As a result, instead of using that monthly allowance on renting an apartment, the applicant can start investing in a home.
Borrowers who have more than one existing VA home loan are still required to adhere to the county’s loan limits. Currently, most of the country’s loan limits are at $548,250, which has increased from $484,350 in 2019, and $510,400 in 2020.
The benefits offered by these loans make them the perfect choice for borrowers who are worried about meeting eligibility requirements and being able to afford the often high costs of homeownership.
Phil Georgiades is the CLS for FedHome Loans Centers, a brokerage specializing in first-time buyer home loans. He has more than 22 years of experience working in real estate. To learn more about programs available to you or apply for a mortgage loan, call us at (877) 432-5626.
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