When searching out home-financing opportunities, it’s worthwhile to see if you qualify for government programs that offer attractive terms. The loans are usually administered through a private mortgage lender, but are insured by the federal government against loss due to borrower default. Here’s a quick primer on the possibilities.
Federal Housing Administration (FHA) loans. Approved FHA mortgage lenders provide money, set interest rates, and have attractive terms for owner-occupied properties. The FHA generally allows for a minimum 3.5 percent down payment with a credit score as low as 500 to qualify, but does require a mortgage insurance premium to be paid by the borrower. Maximum loan amounts are approved by regional offices of the U.S. Department of Housing and Urban Development. Properties must be appraised by FHA-approved professionals following minimum property requirements. No prepayment penalties are allowed, sales contracts must contain an escape clause if property does not appraise for the sales price, and loans can be assumed by a qualified buyer.
Department of Veterans Affairs (VA) loans. For veterans of the armed services, active members or surviving spouses, the VA loan program has excellent incentives for pursuing the dream of homeownership. Veterans or surviving spouses who have not remarried can borrow up to 103.3 percent of the purchase amount with no down payment. The extra 3.3 percent represents a financinging fee paid by the veteran that can be financed into the loan. There is no Private Mortgage Insurance (PMI) required since the VA insures against the lender’s loss if a borrower defaults. The property must be an owner-occupied, one-to-four-family residence. The VA requires two certificates: one for eligibility and another for reasonable value of the property. If a veteran refinances an existing VA loan with another VA loan, he or she can finance up to 100.5 percent with the extra .5 percent going to interest rate reduction. Qualified buyers can assume an existing VA loan.
U.S. Department of Agriculture (USDA) loans. This federal government program is backed by the USDA and is designed to make homeownership accessible to people living in rural areas. The address must be in the USDA’s eligible database. Applicants must have a reasonably good credit history and can finance up to 100 percent of the purchase with a fixed-rate loan. As with the FHA program, the USDA requires homeowners to pay mortgage insurance premiums. There are three programs: the Guaranteed Loan program, the Direct Loan program and the Rural Repair and Restoration program for very low-income families and individuals.
Maximum household income requirements, which vary by county, are enforced. The incomes of all household members are factored together. The home must be occupied by the owner.