There are some buyers out there that qualify for special programs with amazing benefits but have no idea they can take advantage of such an opportunity. To make sure you have the chance to explore all of your possible mortgage options, let’s go over everything home buyers should know about a government-backed home loan.
The first loan we are going to look at is an FHA loan, which is a home loan that is insured by the Federal Housing Administration.
A lot of homebuyers make the mistake of thinking an FHA loan is the exact same thing as a conventional loan, but the lowered credit score qualifications and down payment options are differences that make the FHA loan more attractive to the right borrower.
Specifically, the main beneficiaries of FHA loans are lower-income earners and first-time homebuyers. The FHA loan was created with the purpose of increasing homeownership rapidly during the Great Depression, and it continues to serve an important purpose to this day.
FHA loan requirements include a maximum 43% DTI, or debt-to-income ratio, along with a tier-based down payment requirement that is derived from your credit score of at least 500. With a credit score from 500 to 579, you have to make a 10% down payment on the property while a credit score of 580 or more needs a 3.5% down payment.
This major difference in down payment requirements means taking time to build or improve your credit score can help you out a ton. However, making less than a 10% down payment on an FHA loan comes with the added expense of a Mortgage Insurance Premium that must be paid by the homebuyer every month until either they hit that 10% equity or 11 years have elapsed on the loan.
As a means of spurring rural development, the United States Department of Agriculture began backing certain single-family home loans in 1991. The USDA loan does not officially have a credit score requirement, although a minimum credit score of 640 will be needed to qualify with most lenders.
A USDA loan does not require a down payment, although it is recommended that you try putting something down to start building equity. Another perk is that despite having little to no down payment, USDA loans do not include PMI if you are under 20% equity.
These loans come with income qualifications based on the median income of your municipality. Your household income cannot exceed 115% of the median household income in that USDA loan-qualifying area, and the property itself has to meet USDA loan guidelines as well.
These loans are reserved for those men and women who have served in the United States armed forces, and the loan is backed by the Department of Veterans Affairs.
The basic qualifications include either having served 90 consecutive days of active service during wartime, 181 days of active service during peacetime, 6 years of service in the National Guard or Reserves, or you are the spouse of a service member who has died in the line of duty or as a result of a service-related disability. To establish your qualification for a VA loan you must contact the VA and go through their process to receive your Certificate of Eligibility or COE.
For those who qualify, their time served translates to generous benefits that open the door to homeownership for many. No down payment or PMI and reduced interest rates are the big draws, and there is no minimum credit score aside from the lender’s required credit score.
Guidance Through Government-Backed Home Loan Options in Redlands
If you’re looking to get a government-backed home loan in Redlands and want help understanding your options, contact us today at (951) 232-9704!