Most people want to become a homeowner someday, but the real estate market seems to be getting more expensive as demand increases and supply falters. These high costs are often the main reason many potential home buyers fail to realize their dream of owning a home.
Fortunately there are three government home loans this can help offset the cost of becoming a homeowner. These loans are guaranteed by Federal Housing Administration (FHA) loans, US Department of Agriculture (USDA) loans, and Veteran’s Affairs (VA) loans. All three loans are relatively easy to qualify and offer several advantages.
What are FHA Loans?
FHA home loans are among the most common home loans in the country because of their milder qualification standards and several great benefits. With the United States government guaranteeing this, lenders are more willing to adjust their approval standards.
Some of the main advantages of FHA loans are:
- Low down payment of 3.5%.
- Low closing costs.
- Low monthly payments.
- Having a new buyer take over the loan if the original buyer decides to sell their property.
The approval requirements for FHA loans also make them attractive to first-time buyers who want to take advantage of the numerous benefits and low qualification standards. These requirements include a satisfactory FICO score of 580, although some lenders will only hit 500. However, a lower loan value is required for a higher deposit.
Applicants who have had Chapter 7 bankruptcy can continue to qualify as long as they are two years away from bankruptcy. Chapter 13 bankruptcy applicants are also eligible provided they have judicial records and demonstrate that they have made all of their payments on time for 12 months.
However, different counties have different credit limits based on the median property value of the county in which the property is located. In countries with lower cost of living, FHA credit limits are typically $ 356,362 for a single family home, $ 456,275 for a duplex, $ 551,500 for a triplex, and $ 685,400 for a fourplex.
What are USDA Loans?
The USDA, which is responsible for developing and implementing federal food, forestry, and agriculture laws, is also the USDA home loan administrator. These loans allow borrowers earning less than the median household income to purchase property in areas classified as rural development areas.
USDA loans are designed for lower income borrowers and offer various incentives such as $ 0 down payments, no mortgage insurance requirements, low monthly costs, and low interest rates. These loans are also flexible when it comes to the creditworthiness requirements of the applicant.
Areas eligible for the USDA are mostly suburbs and have a $ 285,000 credit limit for a modest single family home.
What are VA Home Loans?
These are probably the best government guaranteed loans out there. However, they are intended solely for veterans, active duty service members, and their surviving spouses. VA loans come with some great benefits, including a $ 0 down payment requirement, low monthly costs, low interest rates, and the ability to fund the financing fee.
Meet everyone VA home loan requirements includes the fulfillment of several service requirements to be fulfilled. This includes active service of at least 90 consecutive days during war and 181 days in peacetime. National Guard and reserves must have at least six years of service. For surviving spouses, their experienced spouses must have died in the service or as a result of it.
Additionally, starting January 2020, the Bluewater Navy Act has completely lifted credit limits on VA home loans. However, lenders still have a duty to exercise due diligence by ensuring that borrowers can afford the monthly payments.
In addition, borrowers who take out a second VA loan must adhere to the credit limits of their respective county. Most counties in the country have credit limits of $ 548,250 for borrowers with more than one active VA loan, while first-time borrowers have no credit limits as of January 2020.
Government-guaranteed loans allow people anywhere in the country to live with lower or nonexistent initial costs. Hopefully with this information, homebuyers can choose the government-guaranteed loans that are best for their specific situation and get one step closer to home ownership.