Three Government Home Loans You Need to Know About

By Marie Kathleen Ko | FHLC, FED Home Loan Centers

In a recent housing affordability survey, 84% of respondents believe that renting is more affordable than owning a home. The biggest barrier is the down payment. 

The good news is that there are government-backed mortgage programs that allow a renter to purchase a home with $0 down.   

Buying a home is a big step in anyone’s life, and it is one that has is seen by many as expensive and out of reach for most Americans. However, what if I told you that the U.S Government guarantees three types of home loans that can offset and, at times, remove most of the initial costs of buying a home.

These three loans are the Federal Housing Administration (FHA) Loan, the U.S Department of Agriculture (USDA) Loan, and the Department of Veteran Affairs (VA) Home Loan. The United States government ensures each of these loans, protecting lenders from financial loss if borrowers end up defaulting on their loans. As a result, lenders are more willing to accept first-time borrowers who might not have the financial standing that more experienced buyers have.

FHA Loans

This type of home loan is the most widely used as it has the most lenient eligibility requirements and some outstanding benefits.

These eligibility requirements include a credit score of 580, although some lenders accept borrowers with credit scores as low as 500 combined with a higher down payment. In addition to the low credit score requirements, FHA loans have a low-down-payment requirement of 3.5%. However, if you’re still unable to make that down payment, these loans allow you to cover the down payment with an FHA down payment assistance grant.   

In addition, these loans have lower monthly payments than most conventional loans and come in both 15 year and 30-year fixed-rate mortgages.

One limitation that these loans have is loan limits, which depend on the location of the home. Each county has its loan limit based on the county’s median home value. As a result, more expensive counties have higher FHA loan limits.

Furthermore, FHA loans are usable for properties like single-family homes, multi-family complexes, and FHA-approved condos. As more people learn about these loans, they start making inquiries about how to apply for an FHA loan.

USDA Loans

Loans guaranteed by the U.S. Department of Agriculture are for applicants who want to buy a home but might not have the income necessary to qualify for other home loans. Also, these loans are only applicable to areas that are considered rural development areas to encourage lower-income families to move to more rural areas to boost their local economy.  

Moreover, these loans offer several incentives, including a no down payment requirement, lower monthly payments, and competitive interest rates. In addition, applicants must be U.S. citizens, have a credit score of 640 with a dependable and stable income, and a household income equal to or less than 115% of the county’s median household income.

In the end, USDA Home Loans are an excellent option for people who want to live in a modest single-family home in one of the many rural areas in the country.

VA Loans

Many real estate experts consider loans guaranteed by the VA as the best home loans available due to the many excellent benefits. VA loans offer several great incentives like a $0 down payment requirement, lower monthly mortgage payments, no-prepayment penalties, lower interest rates than conventional loans, and the ability to finance the funding fee.

In addition, VA loans are no longer subject to county loan limits since their removal after signing the Bluewater Navy Act on June 13. 2019. This removal of loan limits made it so that borrowers now have the freedom to buy a home anywhere in the country without having to worry about loan limits. The only limitations for VA loan borrowers are how much they can afford to pay their monthly mortgage payment.

Borrowers with more than one active VA loan are still subject to loan limits per county, which for most counties, is currently set at $548,250, with more expensive counties having higher loan limits.

All of the amazing benefits are not available to everyone, as VA home loans are limited to current and former military members who meet all of the VA’s eligibility requirements. More specifically, VA home loans are exclusive to Veterans, Active Duty Service Members, and the surviving spouses of veterans who lost their lives while in active duty or due to an injury sustained while on duty. 

If you’d like to learn more about VA Home Loans or if you’re interested in submitting a VA loan application, call us at (888) 573-4496. Our team of real estate experts will be happy to help with any information that can help you get closer to homeownership. 

Phil Georgiades is the CLS for Fed Home Loan Centers, a brokerage specializing in first-time buyer home loans. He has over 22 years of experience working in real estate at different levels.

About the Author

Marie Kathleen Ko

Direct: 858-935-4174

Fax:  858-935-7303