Expanding Your Options
The Federal government has a stated policy of expanding the home ownership circle, offering a number of programs to support aspiring home buyers, military veterans and their spouses, and those looking to put down roots in rural areas.
If you qualify for one of these programs, you might be able to purchase a home that would have been out of reach if you only had sought financing via conventional mortgages.
Understanding Your Finances
Taking stock of your financial situation is an irreplaceable part of the home purchasing process. Using the TipRanks’ mortgage calculator will help you understand the different parameters of your home buying purchase, and how these variables interact and influence your monthly payments and the overall cost of the loan.
The amount you are able to devote to a down payment will serve as the guiding framework for your possible options. However, your financial circumstances are more than just the numbers in your bank account and expected future cash flow.
These Federal government programs might be able to help you with your homeownership goals.
FHA Loans
The Federal Housing Authority (FHA) is a part of the U.S. Department of Housing and Urban Development (HUD). Its stated purpose is to help more Americans become home owners.
The FHA does not provide loans directly. It serves as a guarantor on the debt, decreasing the risk for private lenders. It works with certain FHA-qualified lenders, who are subsequently able to offer additional credit with the knowledge that they will be covered in the event of a default.
Depending on your credit score, the FHA will insure up to 96.5% of your mortgage, allowing you the option to provide a down payment of 3.5% of the cost of the house. A minimum credit score of 580 is required in this scenario, though if you are able to provide 10% of the down payment your credit score can be lower.
There are some strings attached, however. The program is meant to support homeownership, meaning that this must be your primary residence. Many beneficiaries will also need to pay for mortgage insurance for the duration of the loan. In addition, an inspection must take place to ensure that the property is “safe, secure, and sound.”
You can use the HUD’s Lender List Search on their website to search for lenders that the FHA works with. Banks and other potential lenders will likely publicize their affiliation with FHA as well.
VA Home Loans
Similarly to the FHA, the U.S. Department of Veteran’s Affairs (VA) offers loan guarantees to private lenders who provide mortgages to active duty services members, military veterans, and certain eligible spouses looking to purchase a primary residence.
The outlines of the program are similar to those of the FHA. In other words, the VA does not offer financing directly, but will instead guarantee the debt in the event of a default. However, there are some significant advantages of the VA program, which can make it a great option for those who qualify.
Beneficiaries of this program do not need a down payment, which can be a gamechanger for families struggling to cobble together this initial sum. (Some lenders will demand a down payment, though it is not a requirement of the program.) Other benefits include smaller closing costs and no requirement to take on mortgage insurance.
The first step is to request a VA Home Loan Certificate of Eligibility, which you can do using the VA’s website.
USDA Loans
The U.S. Department of Agriculture (USDA) has programs that are aimed at helping rural home buyers through both a loan guarantee program and by offering direct loans in certain cases.
The USDA loan guarantee program is designed for those in a specific income range who are looking to purchase their primary residence in more sparsely-populated areas. To qualify for the program, your earnings must be less than 115% of the median household income in the area in which you wish to purchase your home.
The limitations, as can be expected, are confined to specific geographic areas. The lending terms will be negotiated directly with the private lender, and must be a 30-year fixed rate mortgage.
Beyond loan guarantees, the USDA also offers a Single Family Housing Direct loan program for those with incomes equal to or less than 80% of the median household income in their area. Beneficiaries must demonstrate that they are without access to safe, secure, and sanitary housing, and that they are unable to qualify for other traditional sources of mortgage financing.
Visit the USDA website to view a list of active lenders who are participating in the Single Housing Guaranteed Loan Program. For those interested in the direct loan program, you can check the USDA’s website to discover if your are income falls within the direct loan limits.
Conclusion: Explore Your Options
For many home buyers, especially those looking to purchase their first home, the ability to own a home is not solely dependent on their existing savings. Exploring programs offered by the Federal government can open the door to greater possibilities than you might have previously thought possible.
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