If you’re like most people, buying your first home can be one of the most exciting moments in your life. From deciding which features you’d like in your new place to determining which neighborhood is the right one for you, the house buying process is an exhilarating one full of fun decisions. However, the fun generally stops when it comes to financing. Finding a way to purchase your dream home can be stressful, but getting just the right loan is one of the most important steps you’ll ever take to financial security.
While traditional loan programs often have high down payment minimums (as much as 20% of the purchase price in most cases, which translates to about $40,000 on a $200,000 purchase) and stringent credit score requirements, a government-sponsored loan program is often a great solution for first time homebuyers.
While government-backed loan programs don’t lend money directly to consumers, each program works with conventional lenders and provides each lender with a guaranty to reduce the risk of the loan. Essentially, the loan program assumes some of the risk for the loan which makes the lender able to reduce their usually strict lending requirements since the risk of exposure is also reduced.
The Federal Housing Administration manages one such loan program. FHA loans are primarily for first time homebuyers and feature not only lower down payment requirements but also less stringent credit regulations. Buyers who have less than stellar credit can often still qualify for an FHA loan while not sacrificing a good interest rate, which is critical to a low monthly payment.
FHA loans feature a variety of interest rate plans and have both adjustable and fixed rates, making the program a great one regardless of your financial picture. The program allows a 3% down payment and allows buyers to roll closing costs into the loan.
If you’re a veteran or active duty service member who is buying your first home, the VA home loan program is worth close examination. Sponsored by the Department of Veterans Affairs, VA home loans are geared towards ensuring that those who have served our country can afford to purchase a home if at all possible.
The program features both a zero down payment option (excellent for buyers who haven’t had time to save a down payment) and a small down payment program (perfect for borrowers who need relaxed credit requirements but have saved a bit of money). Veterans and service members may use the VA loan program more than once, making it an excellent option at any stage in life.
Another great government-backed loan program is the one backed by the United States Department of Agriculture. USDA loans are geared towards lower income buyers (borrowers must not exceed 80% of the median income for their particular area) and offer great payment and loan options. The USDA program just may be the only legitimate loan program remaining to civilians which offers a zero down payment option and in fact, borrowers can finance 102% of the property sale price if the home in question needs repairs. These repairs can be completed before or after the sale takes place.
The USDA program also boasts no need for private mortgage insurance, which is often required on other loans to protect the lender against default. PMI can cost borrowers up to several hundred dollars each month, so not having to pay this fee represents a huge savings to the average borrower.
Each government program has maximum loan limits to which each borrower must adhere. These limits are generally based on the cost of living in your area and are set at a very reasonable rate to ensure that every buyer, regardless of the area’s cost of living, can still afford a modest home anywhere in the country. For more information on these wonderful alternatives to traditional financing, visit your lender or visit each program’s website at www.fha.gov, www.va.gov or www.usda.gov.