A Quick Guide To Government Home Loans

Owning a home is one of most people’s life goals. Homeownership has multiple benefits: living security, reduced monthly housing costs, building equity, and better lifestyle stability. While having these benefits is great, it can be challenging to own a home.

One of the things that may prevent you from getting your dream home is your finances. As you may know, homes are expensive considering the increased demand, and prices continue to rise. Being in such a position can be frustrating. However, the good news is that you can apply for government home loans.

If you’re unfamiliar with government home loans, continue to read this article as we shed more light on the topic.

What Are Government Home Loans?

Government home loans are loans backed by the federal government. In other words, the federal government acts as your guarantor and repays your loan if you can’t make your payments. Although the federal government backs the loans, they are issued by different lenders.

Each lender specializes in a specific type of loan. For example, Security America Mortgage specializes in giving out VA mortgages to veterans.

Types Of Government Home Loans

If you’re thinking of applying for a government home loan, there are some options you can choose from. Below are some types of government home loans you can apply for:

VA Loan

Most people who apply for this loan are military personnel, veterans, reservists, or service members’ surviving spouses. The U.S. Department of Veterans Affairs backs these loans. The good thing about applying for VA loans is that the VA doesn’t have a set minimum credit requirement. However, some lenders have requirements you’re supposed to meet before you get approved for a loan, which varies based on the lender. Some lenders have a minimum credit requirement of 580, while others have higher requirements of up to 620.

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Besides minimum credit requirements, there are other requirements you’re supposed to meet to be eligible for VA loans. For instance, you must have served 181 days during peacetime or 90 days in the war. You’re also expected to have served at least six years with the National Guard and Reserve. Another option is serving for 90 days under Title 32, 30 of which must have been served consecutively.

To prove that you’ve served the required time, you can provide recent paycheck stubs, your driver’s license, tax returns, and recent statements from your retirement, savings, or other investment accounts.

Another advantage of VA loans is they don’t have limits on loans above USD$144,000. However, remember that the amount you qualify for is determined by your income, credit, and debt-to-income ratio (DTI). DTI is the percentage of your gross income you use to pay debts.

FHA Loans

FHA stands for Federal Housing Administration. Unlike conventional loans, these loans require a down payment of approximately 3.5% and have lower minimum requirements. Moreover, you can qualify for an FHA loan even if you’ve been bankrupt or had financial issues.

When applying for an FHA loan, you must pay for a mortgage insurance plan (MIP). This insurance protects your lender if things don’t go well and you default on your loan. When applying, the MIP is assessed in various ways, and you must pay for it during your loan’s term.

Similar to applying for other loans, different factors are considered to determine your credit score. In FHA loans, the factors considered include how often you pay your bills on time, the type of credit you have, how much of your credit you use, and the outstanding debt on your credit cards. Furthermore, how recently and often you take new credit also matters.

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USDA Loans

When it comes to where you’d want to have a home, people’s choices differ depending on their preferences. Some prefer to live in urban areas, while others prefer rural or less-populated suburban areas. If you’re among the people who prefer the latter, USDA loans might work for you. USDA loans help people who want to live in less busy areas and have low to moderate incomes. However, not all properties in rural or suburban areas are eligible for USDA loans. Therefore, consider looking at the USDA’s eligibility site to confirm which properties you can acquire using these loans.

USDA loans have several advantages. One of them is that you don’t have to make any down payments. They also have lower interest rates than most loans and have no maximum home purchase prices. On top of this, you can include the amount you’ll spend on home improvements and repairs in your loan application if necessary.

Benefits Of Government Home Loans

You may still be hesitant about whether government home loans are the best option for you. We’ve listed some advantages of government home loans below:

1.      They Have Higher Chances Of Qualifying

Your loan applications may have been turned down in the past. When giving out loans, lenders evaluate the risk of whether they’ll get their money back or not. If they review your application and conclude you’re unlikely to repay your loan, your application will possibly be denied. However, with government home loans, lenders don’t have to worry much about repayments because the federal government will be expected to pay on your behalf if you fail to repay. As a result, lenders will be more lenient when offering home loans, thus increasing your chances of qualifying.

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2.      They Don’t Require A Perfect Credit Score

To qualify for most conventional loans, you’re expected to have a credit score above 620. This disqualifies a lot of people. However, government home loans include those with less-desirable credit scores and don’t need high credit scores. For instance, if you have a credit score of 580, you can qualify for FHA and VA.

3.      They Require Low To No Down Payments

Lenders ask for down payments to ensure you’ll make your repayments as required. Lenders tend to ask for lower down payments if you have reliable guarantors because there’s less risk on their end. Since the federal government is reliable, you can get home loans from the VA and USDA that don’t require down payments. You can also apply for FHA loans that require lower down payments of 3.5%.

4.      They Review Your Finances

Your finances are reviewed when making purchases such as getting a car. You need a good financial and credit record to qualify for other loans. One way your finances are reviewed is by checking your assets and credit history. Government home loans can help you get a home to add to your list of assets.

Summing It Up

Owning a home comes with various advantages. However, you may have difficulty getting a home due to financial constraints. Luckily, you can apply for government home loans to get your dream home. You can use all the information we’ve provided for you to determine which government loan is most suitable for you. All the best!