Are you curious to know what the right home buying program would be for you? When you’re ready to take the joyful leap into home ownership, you’re not only imagining housing styles and features, but you’re also concerned with financing. There are a wide variety of home loans and programs available, including those specific to assist first-time home buyers. Home buying programs make it easier to qualify by offering less stringent credit requirements. Not only this, but also reduced debt-to-income standards, and smaller down payment amounts. The trick, though, is finding the right home-buying program for you. The most important home buying programs are the FHA, USDA, and VA loans.

✔Preparing for the Programs

Home buying programs such as FHA loans, USDA Loans, VA Loans, and other first-time buyer programs aren’t intended to encourage people to live beyond their means. These financial boosts are intended to assist people who can afford the month-to-month expenses of home ownership but may not have the thousands of dollars on hand to fund the down payment, closing costs, and other expenses. Or, buyers whose credit who has a few dents and bruises that make it difficult to qualify for a conventional loan.

Picture of husband and wife in front of house - home buying program

Savings

Even if you’re able to employ the use of a home buying program that eliminates the need for a down payment altogether, you’re still going to need funds for closing costs, moving expenses, etc. It’s also still a good idea to have an emergency fund set aside that can keep you financially afloat for three-to-six months. If you fear you might be house poor, it’s best to wait until you’re a bit more confident in your financial standing.

Credit

Although home buying programs exist to help those with less than perfect credit, you’ve still got to have a somewhat decent score to work with. People with credit scores under 500 likely will not qualify for any home buying program. If your score is under 580, take some time to contact your creditors, make payment arrangements, and see if you can consciously improve your score, even if it means you must sacrifice in other areas.

Debt-to-Income Ratio

Regardless of your money down and your credit score, lenders are also going to consider your debt-to-income ratio. Your debt-to-income ratio measures the amount of money you earn against what you owe. If you’re over-extended in credit, if it’s getting close to the mathematical improbability that you’ll be able to meet all your financial obligations, you won’t qualify.

Before you investigate which program might be most beneficial to you, explore all the ways you can help yourself by preparing in advance, before you apply for the programs.

🏧Taking it to the Bank

Regardless of the home buying program you use, you’ll apply at a standard financial institution such as your local bank for your home mortgage loan, provided your local bank is approved for your loan program, such as an FHA approved lender. You can usually find a list of approved lenders on the website of the program you’re using. For a list of FHA approved lenders, visit the FHA website.

You may require special documentation to prove your qualification for the program. Be prepared for a long trail of paperwork as each program has various requirements.

Lenders have varying terms, conditions, and rates; they’re not all created equal. Obtain a list of lenders that are approved for the programs you’re trying to use, and then begin researching that list of lenders, narrowing down the list.

🏠FHA Loans – Home Buying Program

What is an FHA Loan?

An FHA loan is a home buying program or mortgage loan in which the United States government is willing to share a portion of the risk with lenders when providing funds for home buyers who meet certain criteria. There’s a misconception that only low-income households qualify for FHA loans. On the contrary, about 40 percent of all U.S. home loans are FHA loans.

FHA stands for the Federal Housing Administration – a government program tucked within the U.S. Department of Housing and Urban Development (HUD). The FHA program, launched in 1934, is designed to encourage and foster homeownership by providing mortgage insurance to FHA-approved lenders. Since its inception, the Federal Housing Association has become the world’s largest insurer of residential mortgages. If a buyer defaults on the mortgage payments, the government foots the bill, and then takes ownership of the property.

Because Uncle Sam is willing to share the risk with the lender, FHA approved financial institutions can provide funds to buyers with smaller down payments, lower credit scores, and more strained debt-to-income ratios.

FHA Loan Requirements

  • Social Security Card: Anyone applying for an FHA loan must be a citizen of the United States, 18 years of age or older, with a social security card.
  • Employment History: Applicants for FHA home mortgage loans must be able to prove a two-year history with the same employer.
  • Proof of Income: Recent tax returns, W2s, and paycheck stubs may be provided by the buyer to the lender as proof of earnings.
  • Credit Score: Home buyers seeking FHA home mortgage loans must have credit scores of no lower than 500, but preferably 580 or higher.
  • Down Payment: Applicants have the benefit of a reduced down payment, but must still provide a down payment to buy a home. FHA loans, however, do allow applicants to use grants or gifts for down payments. The amount of the down payment varies based on the applicant’s credit score.
  • Mortgage Insurance Premium (MIP): Borrowers taking advantage of FHA home mortgage loans must have mortgage insurance, usually estimated at 0.85 percent.
  • Appraisal: An FHA approved appraiser must appraise the property before purchase to verify its current market value is worth the amount the buyer is borrowing.
  • Residence: The house you’re buying with your FHA loan must be your primary place of residence and cannot be a vacation home or investment property.

FHA Loan Limits

Chart showing features of a conventional loan vs fha
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Fannie Mae and Freddie Mac are Congress-created institutions designed to provide ready access to funds to financial institutions. These institutions make loans to purchase residential properties. Each year, Fannie Mae and Freddie Mac set lending limits on conventional loans. Likewise, FHA also calculates and updates loan limits accordingly. In 2016, the loan limit was $271,050 for low-cost areas. That number increased for 2017 to $275,665. High-cost areas receive higher limits, up to $636,150.

FHA Loan Down Payment 

With a credit score of 500-579, borrowers need a down payment of 10%. This is still easier to manage than the standard 20%. However, with a credit score of 580 or better, the required down payment drops from 10 percent to just 3.5 percent. Just remember that with a smaller down payment, you agree to higher monthly payments toward principal, a higher interest rate, and the added expense of mortgage insurance.

How to Apply for an FHA Loan

Only financial institutions approved by the FHA can provide FHA loans. Research lenders to find FHA approved banks in your area. Compare rates between lenders to determine which is best for your needs. With your credit score at 580 or better and a down payment saved and ready, fill out the credit application for your home mortgage loan. Supply the necessary documents. Have the house appraised, and then attend the signing.

Grow Where You are Planted      –   Anonymous

🤔USDA Loans – Home Buying Program

What is a USDA Loan?

A USDA Loan is a home mortgage loan designed specifically for properties that are in rural areas. These conditioned are determined by the USDA. Furthermore, this is backed by the USDA home mortgage loan.

USDA Loan Requirements

USDA Loans are only applicable to rural properties as described by the USDA. These loans are also known as the Rural Development Guaranteed Housing Loan Program. Applicants must meet specific income requirements. Program exists for low to medium income borrowers. Furthermore, they must use the property as their primary residence. Programs include Guaranteed Loan, Direct Loan, and Rural Repair and Rehabilitation Loan.

USDA Max Loan Amount

You might assume that since the USDA loan program exists for income restricted real estate purchases. Specifically, this limits to what a borrower could buy, but that’s not the case with USDA loans. There is no max loan amount. Instead, the USDA considers your qualifying factors such as credit score, debt-to-income ratio, employment history, income, etc.

How to Apply for a USDA Loan

Applying for a USDA loan is like that of an FHA loan. Visit the USDA website to locate a USDA-approved lender in your area. Fill out the application, submit the required documents, and comply with the requests of your financial institution.

USDA Loan Income Requirements

USDA loans are for low to medium income home-buyers in rural areas. The rules state that applicants for USDA home mortgage loans may not earn more than 115% of the median income. This applies specifically to the county in which the home resides.

How to USDA Loans Work?

The USDA loans work to spawn rural development by assisting low to medium income families with the ability to purchase a home without a down payment. The USDA works in conjunction with the USDA-approved lenders, providing a 90 percent note guarantee to banks if a buyer defaults on payments.

💲VA Home Loans – Home Buying Program

What is a VA Loan?

A VA loan is a home mortgage loan supported by the United States Department of Veteran Affairs. The program exists to assist active, discharged, and retired military personnel with the purchase of a house.

VA Home Loan Requirements

VA loans are available only to active, retired, and honorably or medically discharged members of the US Military. These veterans must meet certain conditions.

To qualify for the VA loan, you must have served at least 181 active-duty days during peacetime, or 90 days consecutively of active wartime service.  You’re eligible if you’ve spent more than six years in the National Guard or Reserves. Finally, you may apply for a VA loan if your spouse passed away. This applies specifically to a service-related injury, disability, or died in the line of duty.

How to Apply for a VA Loan

To request a home mortgage loan supported by the DVA, you’ll need a C.O.E. or a certificate of eligibility. Apply through the VA for your voucher, which defines your character and length of time in service.

Additional Programs to Consider

Aside from the home mortgage loans insured by the Federal Housing Authority, the USDA loans backed by the Department of Agriculture to encourage rural lifestyles.Furthermore, the military loans supported by the Department of Veteran Affairs. Also, there are other loan programs such as the Freddie Mac Loan, and Energy-Efficient Mortgages. There are also national, state, county, and citywide programs available for first-time home buyers.

🙋Conclusion

There is a home buying program for everyone who has a desire and will to buy a home. Unique programs help assist Americans to reach the American dream of home-ownership. With less than perfect credit, little down payment, or squeezed debt-to-income ratio, homeownership is possible.

There’s a difference between not being able to afford a house and having difficulty meeting the initial requirements to get into one. You may have no problem whatsoever making your monthly mortgage payments, insurance, property taxes, HOA fees, and all your regular monthly expenses while still having money left over. But that doesn’t mean you’ve got tens of thousands of dollars sitting in the bank waiting for you to purchase a home.

When you find the right home buying program for you, do yourself the favor of getting pre-approved for your home-mortgage loan before you contact real estate agents or begin looking at houses online or in person. When you’ve got your program application completed and the pre-approval for your home mortgage loan, you’re an empowered buyer ready to enjoy the process of shopping for your starter home, a home upon which you’ll be able to expand, upgrade, and renovate over time.

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Choosing the Right Home Buying Program
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Choosing the Right Home Buying Program
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When you find the right home buying program for you, do yourself the favor of getting pre-approved for your home-mortgage loan before you contact real estate agents or begin looking at houses online or in person.
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