Most people want to become homeowners one day, yet the real estate market seems to be getting more expensive as the demand increases and the supply stalls. These high costs are often the primary reason why many potential home buyers end up not achieving their dream of homeownership.
Thankfully, there are three government home loans that can help offset the costs of becoming a homeowner. These loans are guaranteed by the Federal Housing Administration (FHA) loans, U.S. Department of Agriculture (USDA) loans, and Veteran Affairs (VA) Loans. All three of these loans are relatively easy to qualify for and offer several benefits.
What are FHA Loans?
FHA home loans are some of the most common home loans in the country due to their lenient qualifying standards and several great benefits on offer. Also, because the United States Government guarantees them, lenders are more willing to adapt their eligibility standards.
Some of the most significant benefits offered by FHA loans are:
- Low 3.5% down payment.
- Low closing costs.
- Low monthly payments.
- To have the loan assumed by a new buyer if the original buyer decides to sell their property.
FHA loans’ eligibility requirements also make them attractive for first-time homebuyers wanting to take advantage of its many benefits and low qualification standards. These requirements include a satisfactory FICO score of 580, although some lenders will go as low as 500. Still, a higher down payment will need a lower credit score.
Also, applicants who had a chapter 7 bankruptcy can still qualify as long as they are two years removed from their bankruptcies. Applicants who have a chapter 13 bankruptcy are also eligible as long as they have court documentation and prove that they made all their payments on time for 12 months.
However, different counties have different loan limits based on the median property value for the county where the property is. In counties with lower living costs, FHA loan limits tend to be $356,362 for a single-family home, $456,275 for a duplex, $551,500 for a triplex, and $685,400 for a fourplex.
What are USDA Loans?
The USDA, responsible for the development and execution of federal laws for food, forestry, and farming, is also the administrator of USDA home loans. These loans enable borrowers who make less than the median household income to purchase a property in areas considered rural development areas.
USDA loans are for borrowers with lower incomes and offer several incentives like $0 down payments, no mortgage insurance requirements, low monthly costs, and low interest rates. Also, these loans are flexible when it comes to applicant credit score requirements.
Areas that are eligible for the USDA are primarily suburban and have a loan limit of $285,000 for a modest single-family home.
What are VA Home Loans?
These are probably the best government-guaranteed loans available. However, they are exclusively for veterans, Active Duty Service Members, and their surviving spouses. VA loans have some great benefits, including a $0 down payment requirement, Low monthly cost, low interest rates, and the ability to finance the funding fee.
Meeting all VA home loan requirements includes meeting several service requirements to be met. These include active duty service of at least 90 consecutive days during wartime and 181 days during peacetime. National Guard and reserves must have at least six years of service. For surviving spouses, their veteran spouses must have passed away while on duty or as a result of it.
Moreover, as of January 2020, the Bluewater Navy Act completely removed VA home loans’ loan limits. However, lenders are still required to do their due diligence by ensuring borrowers can afford to make their monthly payments.
Also, borrowers who take out a second VA loan still need to adhere to their specific county’s loan limits. Most counties in the country have loan limits at $548,250 for borrowers with more than one active VA loan, while first-time borrowers have no loan limits as of January 2020.
Government guaranteed loans can allow people to live anywhere in the country with lower to nonexistent initial costs. Hopefully, homebuyers can choose the government-guaranteed loans that work best for their specific situation with this information and get one step closer to homeownership.