It is essential to learn about the types of home loans that you may qualify for to have a clear understanding of what your options may be when purchasing a home.
The purchase a home is a significant investment, and selecting the right type of loan can save you money, reduce mortgage qualifications and reduce or eliminate down payments requirements.
When purchasing a home, it is crucial that you decide between a conventional mortgage and a government loan program.
Government programs like the FHA loan program are designed to help more buyers qualify for a mortgage while providing competitive interest rates for new homeowners.
Regardless of the type of home loan you choose to apply for, it is worth taking the time to consider the purchase of a home from the HUD as these homes offer additional saving opportunities.
#1. Find Out About FHA Loans
Provided by the Federal Housing Administration (FHA), the FHA loan program is a popular choice among first-time homebuyers. Rather than give a mortgage directly, this loan program insures approved lenders to reduce the financial risk a lender takes when providing a mortgage.
In doing so, the program entices lenders to minimize eligibility and down payment requirements to help more low-income households become homeowners.
To participate in this loan program, you must meet specific eligibility requirements.
FHA loan requirements include:
- A credit score of 500 or higher (additional benefits begin at 580+).
- A down payment of 3.5 percent of the purchase price (10 percent for credit scores of 500-579).
- Income and debt-to-income related qualifications.
While this loan program offers several benefits, participants must obtain and maintain the Mortgage Insurance Premium (MIP). This premium fee is an annual fee that is based upon the loan amount.
#2. Learn About VA Loans
The U.S. Department of Veterans Affairs (VA) provides several VA home loan programs to qualifying U.S. military personnel and veterans.
These programs can give veterans several savings opportunities and lack the drawbacks of other government loan programs.
In most cases, the VA insures a qualifying applicant’s mortgage rather than provide it directly. Not only do qualifying veterans receive reduced eligibility requirements for a mortgage, but most applicants are not required to make a down payment.
Additionally, this loan program does not require mortgage insurance, which can save homeowners up to $2,000 a year on average.
VA loan requirements vary by the loan program, but generally include qualifications related to:
- Credit score and history.
- Income and debt-to-income ratio.
- Service length.
- Discharge status, where applicable.
To obtain a VA loan, you must obtain a certificate of eligibility (CoE). This can be done in several ways, including online, at your local VA office or through a VA-approved lender.
#3. About Conventional Mortgages
Unlike VA and FHA loans, conventional mortgages are not insured by the federal government. Instead, conventional mortgages are offered by private lenders and commonly include more stringent eligibility requirements.
If you are interested in a conventional mortgage, you will likely need a credit score of at least 620 to 640; however, each lender can set their requirements. Down payment requirements are typically between 5 and 20 percent.
However, down payments lower than 20 percent generally require Premium Mortgage Insurance. Additionally, homebuyers must meet income and debt-to-income ratio qualifications.
#4. Learn About HUD Homes and the Good Neighbor Next Door Program
HUD homes are properties that are sold by the U.S. Department of Housing and Urban Development (HUD) following a foreclosure on a loan program offered by the Federal Housing Administration.
These properties are often listed below their market value to generate a quick sale and recoup the loss suffered in a foreclosure.
In addition to the savings that these homes already offer, the HUD provides additional saving opportunities through the Good Neighbor Next Door Program.
This program is available to qualifying k-12 teachers and first responders with savings of up to 50 percent off of the sales price of a home.