(Article submitted by the FedHome Loans Center)
We all dream of one day being the proud owner of a beautiful home where we can have family over and even raise our own little family. However, as housing demand continues to increase, and builders cannot meet the demand, homes’ price has continued to skyrocket in recent years. Thankfully, there are ways for purchasers to get a great deal on a new home without having to be extremely wealthy.
The increase in costs for homeownership is where government-guaranteed home loans can make all the difference. Government home loans are guaranteed by the Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA), and the Department of Veteran Affairs (VA). All of these loans are backed by the U.S. government, which protects lenders from loss if the borrower cannot make their monthly payments—enabling lenders to be more willing to accept borrowers with lower credit scores and past bankruptcies.
FHA Home Loan Information
Loans that the FHA guarantees are the most widely used government-guaranteed home loans. FHA loans have seen an increase within the millennial generation, with 26% of all closed loans in 2018 by millennials being FHA home loans. The appealing aspects of these loans are their low eligibility requirements and the great benefits that they offer. The most significant benefits provided by FHA home loans are:
- A down payment requirement of 3.5% much lower than the conventional average of 20%.
- Lower closing costs.
- Lower than average monthly mortgage payments.
- It comes in both a 15 or a 30-year fixed-rate mortgage.
In addition to these listed benefits, FHA home loans are also assumable. Meaning that if the initial borrower decides to sell their property, a new buyer can assume the loan and make payments on the same loan.
Submitting an FHA loan application and enjoying these incredible benefits is possible with some of the most lenient eligibility requirements out of any government home loan available. Some of the most basic eligibility requirements for FHA loans include a credit score of 580, although some lenders will accept credit scores as low as 500 with a higher down payment. It is also possible to take out a grant to cover the down payment, effectively reducing the applicant’s down payment to zero.
If the applicant has gone through financial hardships in the past, it is still possible to take out an FHA home loan. All the applicant needs to do is show proof that they can make payments on time for at least one year before applying. Applicants who have gone through bankruptcies can still qualify. If they had a chapter 7, all applicants need to have a two-year gap from their declaration date. Applicants with a chapter 13 need at least 12 months from the declaration date and court approval before applying.
USDA Home Loan Information
USDA loans have a more targeted customer base of low-income applicants who want to purchase a modest single-family residence in a rural part of the country. The purpose of this loan is to enable applicants whose income falls under the median home price to become homeowners while at the same time growing rural economies by having more people move in. Additional benefits offered by USDA home loans include:
- $0 down Payment Requirement.
- Flexible Credit Score Requirement.
- Competitive Interest Rates.
- Lower Monthly Mortgage Payments.
Additionally, USDA qualifications require that the property location is within an applicable rural community, labeled as a rural development community. Additional eligibility requirements include the applicant being a U.S. citizen, stable and dependable income, and 12 months of no late payments.
VA Home Loan Information
The VA’s government-guaranteed home loans are exclusively for Veterans, Active Duty Service Members, and surviving spouses of deceased veterans. Due to their exclusivity, these loans have gone through constant refinements, which improved them significantly, and have earned them the title of best government guaranteed home loans. Due in no small part to benefits like:
- No Down Payment Requirement.
- Low-Interest Rates.
- Lower Monthly Mortgage Payments.
- No Prepayment Penalties.
- No Mortgage Insurance Premiums.
- Ability to Cover Funding Fee with the Loan.
In addition to these great benefits, as of January 1st, 2020, VA home loans are no longer required to follow county loan limits. Now loan limits are virtually non-existent for first-time borrowers, with the only limitations imposed by individual lenders. Some lenders have loan limits that go as high as $5 million, as long as the applicant makes the income necessary to qualify. Borrowers who have more than one active VA loan are still required to follow loan limits depending on the county.
To submit a VA loan application, the applicant must ensure that they meet all eligibility requirements outlined by the VA. Being eligible requires applicants to cover eligibility based on income, military service, credit score, and property requirements.
Millennials are facing a more significant obstacle when it comes to becoming homeowners. Data published by the Federal Reserve Distributional Accounts points out that millennials currently own about 4% of Real Estate in the United States, which is much lower than Gen X did at the same age. Thankfully, this does not have to be the case, and hopefully, as more millennials learn about government loans, that homeownership gap can be reduced significantly.
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. If you’re interested in learning more about government loans or applying for a home loan, call us at (877) 432-5626.