When buying a home, the most significant decision is what loan the borrower will take out. This part of the process can be the most stressful part of the home buying process. Thankfully, several options are available for what type of loans to take out, with some of the best loans available being government-backed home loans.
There are three types of home loans that are sure to make your home purchasing process more affordable. These are FHA, USDA, and VA home loans, and they have some of the most lenient qualification requirements. However, VA loans require applicants to be either an Active-Duty Service Member, a Veteran, or the spouse of a deceased veteran. These loans are outstanding for first-time borrowers who might not have the highest credit score or much disposable income.
FHA Home Loans
FHA loans are the easiest to qualify for out of all government-backed loans; their eligibility requirements include a FICO credit score of 580 or more although, some lenders will accept lower credit scores. A 20% down payment required with conventional loans is a mere 3.5% down payment requirement with FHA loans.
Not only are these loans easier to qualify for, but they also offer some great benefits. Including lower closing costs, low monthly mortgage payments, and the ability to borrow more than the property is worth to cover the cost of repairs.
Qualifying properties for these types of loans are anything from a single-family home, a qualifying condo, to multi-family dwellings up to a fourplex. However, there are loan limits that are dependent on the property’s location. Additionally, even though the United States Government guarantees these loans, they are lent out by qualified lenders, meaning that individual lenders might outline additional requirements.
USDA Home Loans
The U.S. Department of Agriculture offers home loans for low-income homebuyers trying to purchase a home in a rural community. These loans provide several incentives, including no down payments, competitive interest rates, low mortgage insurance payments, and flexible credit requirements.
However, to be eligible for these loans, an applicant must have an income that is less than 115% of the county median income. Additionally, applicants must also be U.S. citizens, have a credit score of 640, and have an income that is considered stable and dependable. When it comes to meeting the credit score requirements, an applicant can still be eligible with lower credit scores, although they may be subject to manual underwriting and other stricter guidelines.
USDA home loans focus on modest single-family homes for applicants who make less than the county’s median household income. Anyone interested in submitting a USDA loan application can speak to real estate experts at FedHome Loan Centers.
VA Home Loans
Widely considered the best government-guaranteed loans available. VA home loans offer several benefits like no down payments, low monthly costs, and low interest rates. However, VA loans are exclusive to veterans, Active-Duty Service Members, and spouses of service members who are either missing in action or died due to their service.
These loans are for purchasing properties like single-family homes, multi-family dwellings, and approved condos. On January 1st, 2020, the removal of VA loan limits results in borrowers living in more affluent areas without the previous loan limits’ restrictions.
Lenders still have to do their due diligence before giving out loans based on their ability to make their monthly payments. However, borrowers who already have one existing VA loan must adhere to the loan limit of $548,250, which might differ depending on the county. Furthermore, specific lenders currently offer a loan limit of $5,000,000 for the first VA loan while also not charging any upfront costs to the borrower.
Phil Georgiades is the CLS of VA Home Loan Centers, a government-sponsored brokerage specializing in VA Home Loans. He has been practicing real estate as a professional for the last 22 years. For more information about government loans or apply for a home loan, call us at (877) 432-5626.