Affordable Home Loans: What Are the Options?

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1. FHA Loans
2. Low Down Payment Conventional Loans
3. USDA Loans
4. VA Loans
5. Down Payment Assistance

FHA Loans

Federal Housing Administration (FHA) loans are mortgages insured by the FHA, a federal agency within the Department of Housing and Urban Development. Because FHA loans are government-backed and insured, they are more accessible for borrowers (compared to most conventional loans).

An FHA loan is a great option if you want to put less money down, don’t have enough savings built up for a 20% down payment, or have a lower credit score. Although FHA loans require borrowers to pay for mortgage insurance, they provide homeownership opportunities for many homebuyers who have trouble qualifying for most conventional financing.

FHA Loans Make Homeownership Achievable:

• Low down payment requirement
• Flexibility on debt-to-income ratio
• Qualify with less-than-perfect credit
• Down payment funds from family/friends permitted
• Purchase or refinance loan options available

Additionally, if you’re looking to buy a fixer-upper, an FHA 203K loan may be worth looking into. These loans are backed by the federal government and allow homebuyers to buy damaged or older homes and include the price of the necessary renovations in the loan amount.

Low Down Payment Conventional Loans

You might be able to qualify for a conventional loan with a very low down payment. HomeReady® (by Fannie Mae®) and Home Possible® (by Freddie Mac) are two conventional loan programs that require as little as 3% down.1 Although there is an income cap, there are no first-time homebuyer restrictions.

In order to qualify, you’ll need:

• A credit score of at least 580
• Maximum income of 80% of the Area Median Income (AMI)
• If you’re not sure if you meet the income limitations, tools from both Fannie Mae^® and Freddie Mac allow you to check based on your address.

USDA Loans

USDA loans are designed to help low-to-moderate income homebuyers living in smaller and rural communities. Borrowers may have the opportunity to own a home with zero money down and may be able to get a lower interest rate than they would with a conventional loan.

However, your household will have to meet income requirements based on the county you live in, and the home to be purchased must be in an eligible rural area as defined by the USDA.

You should also keep in mind that these loans require:

• An Upfront Guarantee Fee, which is 1% of the loan paid at closing or rolled into the loan
• An Annual Guarantee Fee, which is 0.35% of the remaining loan balance paid monthly as a part of your mortgage payment

VA Loans

The VA loan program is distinctive because no down payment is required. Additionally, borrowers don’t need to pay mortgage insurance. (Private mortgage insurance (PMI) is normally required for homebuyers that put less than 20% down on conventional loans, and mortgage insurance premium (MIP) is required on all FHA loans.)

VA loan programs don’t have income maximums, but applicants must have a stable income, and a steady job. They also must meet some basic Military service requirements.

Here are some in-depth service requirements as listed by the U.S. Department of Veterans Affairs. Below is an abbreviated version.

• Served 90 consecutive days of active service during wartime
• Served 181 days of active service during peacetime
• Served more than six years with the National Guard or Reserves (or 90 days under Title 32 with at least 30 of those days being consecutive)

Keep in mind that the VA is not a mortgage lender. Private lenders originate the loan and the VA guarantees a portion of it. For the lender to make a VA-backed loan you must provide proof that you meet the eligibility requirements. The Certificate of Eligibility (COE) serves as that proof. Your COE will have the entitlement amount on it so the lender knows exactly how much the VA will give them if you were to default. Learn more about how to get your COE here.

Down Payment Assistance

There are publicly and privately funded programs designed to help cover down payments and/or closing costs. With these assistance programs, funds are administered by cities, counties, housing finance agencies, nonprofits, lenders and sometimes even employers. In total, there are over 2,000 different down payment assistance programs in the United States. You can search programs by state here. The qualifications vary, and many are geared to low-income applicants.

These funds may be available as low or zero-interest loans, tax credits, or even grants that don’t need to be paid back.

Have questions regarding whether you qualify for any of these affordable mortgage loan options? We’re always here for you. Contact us today and let us put our expertise to work to help make your homeownership dreams come true!