and Kath Ko, FHLC
Many people are hesitant about becoming homeowners because they believe that they cannot afford the high costs associated with taking such a venture. With most conventional loans requiring a 20% down payment, the initial costs are often high enough to drive many potential buyers away as they can be in the tens of thousands.
Thankfully, there are government-insured loans in the form of the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA), and Veteran Affairs (VA) home loans which can reduce and at times altogether remove these initial costs. Also, the United States Government guarantee allows lenders to be more lenient about their requirements to approve the loan.
FHA Loans
Federal Housing Administration loans are the perfect type of loans for borrowers who have never taken out a loan before. FHA home loans include benefits like:
- Low 3.5% down payment.
- Credit scores of 620 and lower.
- Low closing costs.
- A cosigner can help the borrower qualify.
Also, people who have had a rough financial past are not obligated to waive their dream of homeownership goodbye. Applicants with a chapter 7 bankruptcy can still qualify for an FHA home loan if they are two years removed from their bankruptcy. Moreover, applicants with a chapter 13 bankruptcy can still be eligible for a loan if they have court approval and a 12-month history of making payments on time.
The amount an applicant can borrow depends on the county. In most lower-cost counties the limits are $356,362 for a single-family home, $456,275 for a duplex, $551,500 for a triplex, $685,400 for a fourplex. However, these loan limits are higher for more expensive counties.
USDA Loans
The USDA’s loans allow low-income earners to purchase a home in one of the many rural communities in the United States. Also, the USDA offers several benefits, which include:
- $0 down payment.
- Low closing costs.
- Competitive interest rates.
- Flexible credit requirements.
These types of loans only cover properties that are modest-sized single-family homes that don’t have any health or safety hazards. Also, these loans are subject to county limits, which for most lower-cost counties are $285,000.
VA Loans
Created by Congress’s act in 1944, VA home loans are for Veterans and Active Duty Service Members. The benefits of VA loans are so significant that they have helped more than 22 million veterans become homeowners since its creation.
The VA benefits include a $0 down payment, low monthly costs, low interest rates, and no prepayment penalties, among many others. Not to mention that VA loans can finance the purchasing or refinancing of a home.
As of January 2020, VA home loans have had their loan limits removed for first-time borrowers. However, borrowers with more than one existing VA loan are still subject to their loan limits. Most counties in the country currently have a VA county loan limit of $548,250, increasing every year.
Summary
Government guaranteed loans are perfect for people interested in living in a beautiful picturesque area but are worried about the hefty costs of becoming a homeowner. In addition to being a home loan that the federal government guarantees, these loans have lower eligibility requirements and more affordable down payments.
Phil Georgiades is the CLS of FedHome Loans Centers, a brokerage specializing in first-time home buyer loans. He has been a practicing real estate professional for 22 years. To learn more about programs available to you or apply for a home loan, call us at (877) 432-5626.