Affordable Housing Loans: What Are the Options?

The mortgage process can seem both confusing and overwhelming. That’s understandable because buying a house may be one of the most important and biggest purchases that anyone will ever make. That's why we're here - to showcase some of the options that make home buying more affordable and accessible. 

A conventional mortgage is a loan for real estate that borrowers need to apply for and repay monthly over a set number of years. However, other mortgage loan types can make buying a house easier – cue Affordable Housing loan options and Down Payment Assistance (DPA).

Let’s look at a few affordable housing loan options as well as a few borrower assistance programs: 

FHA Loans

FHA loans are mortgages insured by the Federal Housing Administration, a federal agency within the Department of Housing and Urban Development. Because FHA loans are government-assisted and insured, they are more accessible for borrowers (compared to 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 conventional loan requirement of 20% down, or have a lower credit score. It’s important to note that while FHA loans require borrowers to pay for mortgage insurance (since they’re government-backed), they serve to provide homeownership opportunities for many home buyers who don't qualify for 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. There are resources available with more detailed information about what kinds of properties qualify, which home repairs qualify, how much money you can get, and provisions that many FHA 203K loans include.

USDA Loans

USDA loans offer homebuyers living in smaller and rural communities the opportunity to own a home with zero money down. According to their website, the USDA loan requires that the occupiers use the dwelling as their primary residence, with an income requirement that stipulates the owner's income cannot exceed 115% of the median household income within their State's County. 

To be eligible for many USDA loans, household income must meet certain low to moderate-income guidelines. Also, the home to be purchased must be in an eligible rural area as defined by the USDA. There are no down payment requirements, no maximum home purchase price, and interest rates are often lower than any other mortgage type. Moreover, things like eligible home repairs and improvements, and some upfront fees may be included in the loan amount. Be aware that a USDA loan will sometimes require mortgage insurance.

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.)

Although VA loans are credit flexible, 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 technically not a mortgage lender as 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, or (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. Detailed information on how to obtain a COE for a loan can be found on the VA website

Down Payment Assistance

If you are a first-time homebuyer, there are publicly and privately funded programs designed to help cover down payments and 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!

Down payment assistance products may have a higher interest rate or higher finance charges than other loan products which may be available.