Three Government Loan Programs for First time Home Buyers
Washington – RealEstateRama – A growing concern among millennials who want to purchase a home is that they cannot afford it. In fact, according to a recent poll by The Urban Institute, 53% of millennials say they cannot afford to buy a home because of the high down payment required. In the same poll it also states that 33% of millennials don’t purchase a home because they believe that they can’t qualify for a mortgage.
With most conventional loans requiring a 20% down payment and a credit score that is in the high 600’s, it is no surprise that the millennial generation feels this way. Thankfully, three government loans can help address those same issues that plague the millennial generation.
Federal Housing Administration (FHA) Loans, U.S. Department of Agriculture (USDA) Loans, and Veteran Affairs (VA) loans can help make access to homeownership more affordable. All three of them offer low to no down payment requirements as well as flexible credit requirement standards. In the following section, we will go over the benefits and eligibility requirements for each one of these three loans.
FHA Home Loans
One of the most accessible government loans available is FHA home loans due to their low eligibility requirements and excellent benefits. Some of the great benefits that come from FHA loans are; a small 3.5% down payment, low closing costs, and low monthly costs. Also, some FHA loans allow the borrower to take out more than the property’s purchase price to cover potential upgrades and repair costs.
Because the United States government guarantees these loans, lenders tend to be more flexible with their requirements. For FHA loans, acceptable credit scores can be as low as 580, with some lenders accepting even lower credit scores. However, a higher down payment might be a requirement at that point.
Applicants with previous financial issues may also qualify with recipients of Chapter 7 bankruptcies still qualifying as long as they are two years removed from their bankruptcy. Applicants with a Chapter 13 bankruptcy can also be eligible. However, they must have court approval and show proof that they have made all their payments on time for the last 12 months.
A borrower can take out FHA loans multiple times; however, there must be a three-year gap between loans. These loans are subject to their county loan limits, which are different per county and change depending on the median home price of the area.
The U.S. government backs these loans, but independent lenders administer them. At FedHome Loan Centers, there is a team of real estate professionals who are willing and able to help people who are looking to purchase their first home.
USDA Home Loans
The U.S. Department of Agriculture does much more than inspect foods for harmful pests. They also administer home loans for people with low incomes looking to buy a home in a rural community. The program does this by offering incentives like a $0 down payment requirement, low monthly mortgage payments, competitive interest rates, and flexible credit requirements.
Also, these loans require that the property that the applicant is applying for is a modest single-family home within a rural development area. Furthermore, qualifying incomes for these loans have to be either below or at the areas low-income limit.
VA Home Loans
These are probably the most recognizable of all Government-guaranteed loans since they offer some of the most significant benefits afforded to members of the military. VA loans were created in 1944 by a congress that sought to reward its members of the military returning from World War two with the ability to purchase a property. Since then, VA loans have helped approximately 18 million veterans buy their homes.
Today, VA loans offer several excellent benefits such as no down payment requirements, no mortgage insurance premiums, no-prepayment options, and low monthly costs. Additionally, as of January 2020, these loans are no longer limited by their county loan limits since the signing of the Bluewater Navy Act into law has completely removed loan limits.
Lenders are still required to set up their limits for borrowers depending on their ability to make their monthly payments. Borrowers who want to take out more than one loan are still required to adhere to the loan limits in their county, which is about $510,400 in most places.
In conclusion, Government-guaranteed loans offer a great alternative to conventional loans, especially for newer generations who want to become homeowners. But are often discouraged by the high cost of owning a property. Government loans might be the solutions that many millennials have been looking for in their home purchasing journey.
Phil Georgiades is the CLS of VA Home Loan Centers, a government-sponsored brokerage that specializes in VA Home Loans. He has been a practicing real estate professional for 22 years. To apply for a VA home loan, click here.