Owning your own home is the keystone of American culture in achieving your dreams. With a sea of information online and tales handed down from generation to generation, the idea of obtaining a home loan has become more of a nightmare than a dream.
Federal Home Loan Centers is here to help put some misconceptions to rest. With this one-stop shop article, we will help you see that the goal of homeownership is less scary of a journey than you could have imagined. You have many resources, and we have answers to your questions.
– What are the different types of government home loans I can get?
– What benefits are there to choosing a government home loan?
– What properties can I use these government loans on?
– What kind of basic qualifications do I need to have to get these loans?
– What kind of employment history do I need to meet to get a government home loan?
– What is DTI and what does it have to do with applying for a home loan?
– How can I get my credit score higher if I’m renting?
– What exactly are closing costs?
– What if I have some unpaid debts?
– What if my background or current situation is questionable?
First, we have the VA Home Loan. These loans were created as a government service to the military after World War II to help servicemen gain sustainable housing, and over 20 million of these loans have been distributed since. They were installed as an alternative to cash bonuses for the military in the hopes they would use it on a home.
Second, we have USDA Home Loans. The USDA (yes, the people who inspect your beef) administers home loans, and sometimes even grants. These loans are intended for those in rural communities, and sometimes in qualifying suburban areas, who are low income to help obtain stable, modest and sanitary housing. These loans are open to many U.S. citizens and you do not need to work for the USDA to qualify for the program.
Our final example is the FHA Home Loan. The U.S. Department of Housing and Urban Development provides a service for qualifying low to moderate income Americans living anywhere in the U.S. This loan is desirable if you do not qualify for a VA Home Loan or a USDA Home Loan.
To apply for a government home loan, call 877-432-5626 or use the chat form on this page to speak with one of our knowledgeable representatives.
Question: What benefits are there to choosing a government home loan versus going with a conventional lender?
With a VA Home Loan, there are quite a few benefits. Pending if you meet loan qualifications, you do not need to make a down payment for this loan. There is no limit on how many VA Home Loans you can have, as long as no defaults are occurring. The interest rates are very low, there is no mortgage insurance and there is no penalty fee for paying off your loan early. You can refinance your VA Home Loan, or even a previous conventional home loan, to a lower interest rate VA Home Loan, as well as there being a cash-out refinance option. While no minimum credit score is needed in order to qualify, lenders are not going to work with you if you lack a sufficient credit history. There are also VA Jumbo Loans that go over $417,000. The loan can also be assumed to another person who meets the basic qualifications of this loan.
In regards to USDA Home Loan benefits, you will also not need to make a down payment, much like the VA Home Loan. These loans are not only used in order to purchase a home. You can also get loans and grants through the USDA to do modifications on an existing home, or to eliminate safety and health hazards from a current residence. The USDA Home Loans, which you have 33 to 38 years to pay off (at a low interest rate), also lack a penalty (prepayment fee) in paying off your loan early. Having a credit score of at least 620 will get you qualified, even though a lender may sometimes consider you if you have a score between 580 and 619. The USDA will also let you refinance your loan under certain circumstances, but you may not get a cash-out refinance on it.
For FHA Home Loans, while you can’t forgo a down payment such as the previous two options, the down payment on this loan is very low at an average of 3.5 percent. Paying off this loan early will not result in a penalty fee. As of 2013, the FHA reports that the average interest rate on their home loan is between 3.46 to 3.60 percent. You may also do a refinance on this loan with either paying lower interest or getting cash back on the equity. This loan may also be assumed.
To apply for any of the loans mentioned in this article, call 877-432-5626 and dial zero.
For VA Home Loans, you can buy any residential property. Houses, duplexes, triplexes, a four-unit structure, condos, town homes and PUDs qualify. If it is a condo, the HOA must be approved for VA Home Loans. Sorry, but you may not join the tiny homes craze with this loan, since most tiny houses are considered cabins.
FHA Home Loans can be used for existing homes (condos, duplexes, triplexes, houses and more), ones that are in construction, and mobile homes qualify, too! With USDA Home Loans, you may use them on modest single family homes, and even manufactured homes.
Tiny homes unfortunately do not qualify for these two loans, either. There are mortgage options on tiny houses, so call 877-432-5626 for more information. For a list of government approved homes for sale, use our website chat feature, or call 877-432-5626 and dial 1.
Question: Other than employment and credit score related things, what kind of basic qualifications do I need to have to get these loans?
Recipients of the VA Home Loan must be active duty, or a veteran, who has 90 days of wartime duty or 181 days during peacetime, minimum. If you are a veteran, you must have an honorable discharge or have been discharged due to service related disability options. You need a COE from the VA and use a VA approved lender.
There are some catches, here. For National Guard or the Reserves, you need to have served 6 years prior to asking for a VA Home Loan. Surviving military spouses, and certain other government workers can qualify. Public Health Service, National Oceanic & Atmospheric Administration, cadets in the Academies of The Coast Guard, Air Force, U.S. Military, and Naval Academy midshipmen can apply for VA Home Loans, too.
The USDA Home Loan has certain areas of the United States that do not qualify for these home loans, but you don’t necessarily have to be somewhere rural and seemingly remote to qualify. For example, within a 45 minute drive of San Diego, the area of Alpine Heights is eligible for USDA Home Loans and still qualifies as San Diego County. You also can already be residing in the home you want to own or renovate, as long as it is considered modest for your county and in these approved rural areas. You must also be below 80 percent of the median income for the area you are trying to obtain a modest home in.
Many people take advantage of an FHA Home Loan because it has more lenient eligibility guidelines. As long as you can afford the down payment, meet a certain DTI (which will be described in an upcoming section), and meet the credit score requirement, you can go for it. Two more attractive features of the FHA loan are that the down payment can be a gift from another person and closing costs may be paid off by the lender or seller of the property.
To find out what loan you qualify for and where you can use it, call 877-432-5626 and dial option 2.
All three government loans discussed in this article require that you have a two year employment history. These two years worth of employment must have been stable and must be ongoing employment. For USDA Home Loans specifically, if you are self employed, you will need two years worth of 1040s and part time employment of over a year can count.
If you have two or more years of stable employment history behind you, but changed careers recently and want to apply for a government home loan, there are three stipulations. First, the new employment must be stable. Second, if you are still in the same industry or doing the same type of job, but just for a different company, you will only need to show proof you have been there for 30 days or more. Secondly, if you have taken on a completely different career (EX: you were an engineer, and are now a chef), you will need to provide verification that you have been there for a year or longer.
DTI is your Debt to Income ratio. The amount you carry shows the amount of monthly payments you have versus extra money you have as disposable income. If you have 50 percent DTI, this means the other 50 percent must not dedicated to monthly essential expenses like rent, gas, groceries, electricity, etc.
A VA Home Loan needs a DTI of 71 percent (or less), at the lowest point. So then a minimum of 29 percent all the way up to 59 percent of your income must be disposable and not toward current debts/bills in your day to day life.
The minimum accepted DTI for an FHA Home Loan is 43 percent, so 57 percent of your income must be disposable. With the USDA Home Loan, minimum accepted DTI is 29 percent if you have a credit score below 640 with 71 percent of your income as disposable. If your credit score is above 640, your DTI can be up to 47.99 percent with 52.01 percent of your income being disposable.
Question: My credit score is low, ordinary or I don’t even have a credit score yet. I don’t have a good way to get my score higher since I’ve always been renting an apartment and I can’t pay my other bills off any faster than I am.
Keeping a roof over our heads is a high priority, so let’s assume you always pay your rent in full and on time. Rent Track is a program from credit bureaus Experian and TransUnion in which paying rent online through credit cards or e-Checks beefs up your credit score. If your apartment building or complex does not have the Rent Track system, show this article to your landlord. They can look further into it and begin the process of using something helpful for themselves, and for tenants!
Question: What exactly are closing costs and are they different on these government loans than conventional loans?
Closing costs are made up of fees done at the ending of a real estate transaction. The title of the property transfers from the current property owner to the buyer. The borrower may use a Good Faith Estimate (GFE) form from HUD in the process, which includes an estimate of closing costs.
A VA Home Loan’s closing costs may not be financed into the loan, but the closing costs can be paid for by the seller as a means to get the house off the market faster. A good example of this is when a VA Home Loan holder negotiates with the seller that if the seller pays the closing fees, the borrower will cover the cost of the termite inspection. VA Home Loans also have what are called allowable closing costs, which are the eight fees allowed to be charged of a veteran in this process. VA Home Loan closing costs are usually 1 percent of the final amount the loan will be. The VA in some cases provides financial assistance for down payments and closing costs.
For the FHA Home Loan, your closing costs do not have the option to be financed into the loan, but these costs can be paid by the lender or the seller, if they choose to do so. Even the builder of a new property is eligible to pay for part of your closing costs. There are allowable costs that can be charged, much like the VA Home Loan has allowable fees, but the borrower may not be charged certain fees, such as a tax service contract fee.
On a USDA Home Loan, the closing costs can be gifted from a source other than the borrower and up to 2.75 percent of these costs can be factored into the sales price of the home. Closing costs may be included and financed into the loan, meaning you can use funds from the loan for closing costs, if borrower assumes responsibility for all closing fees.
If you want a loan estimate on a home, including closing cost ballpark figures and even rebates, call 877-432-5626 and dial option 0.
Question: What if I have some unpaid debts? I have either a car loan, accounts in collections, medical debts, or I’ve had a recent bankruptcy or foreclosure.
In the case of VA Home Loans, if it has been 2 years after filing Chapter 7 bankruptcy, or a year after Chapter 13 filing, you should be fine. You will have to wait 24 months after a foreclosure with a minimum credit score of 530 to 640. You cannot have more than one foreclosure in your history. If you had a short sale, or a short payoff, you can apply immediately unless you had any default, AKA missed a payment. In that case scenario, you would have to wait 24 months and again, have a minimum credit score of 530 to 640.
In relation to debts and attaining a VA Home Loan, you are allowed to have auto loan debts, as long as it is not significant. A significant auto loan debt, in the eyes of the VA, would be those with a remaining term of 10 months or more, or if monthly payments are found uncommonly high.
Typically, significant debts and obligations will be deducted from the total effective income in terms of the VA Home Loan. For student loans, the lender may take into consideration how much the monthly payments are. If your payments do not begin until a year or later from the time you get your VA Home Loan, or if the debt can be deferred, this is satisfactory. If you are in collections, especially for medical bills, it is not a requirement to have those debts paid off, but the VA recommends it.
For FHA Home Loans, you can apply as soon as two years after a bankruptcy, but you may only have a year wait after a short sale or foreclosure. Due to the 2013 FHA Back to Work Program, you may only have to wait a year after bankruptcy, but there are specific exceptions. You are able to use a cosigner for this loan, if desired. Any debts that you have are considered part of your DTI and will not prevent you from getting the FHA Home Loan, as long as they also haven’t destroyed your credit score.
You will need to wait 36 months after any bankruptcy and foreclosure in regards to USDA Home Loans. You cannot have missed more than one monthly payment on any bills within 12 months. You also cannot have been late on rent payments more than twice in the past three years. If you have any collections accounts where you have not made any attempt to pay or set up a payment plan, this will hurt your chances. If you also had an account go over to a collections agency within the past 12 months, you will not be considered.
Question: What if my background or current situation is questionable? What if I have a criminal background, live with a registered sex offender, or have a dog that has bitten people when I want to get a house? What if I currently have a terminal illness, and they end up thinking I can’t pay back my loan?
None of the government loans specified will ask you any background information questions like these. You cannot be prevented from getting any of these loans based on a disability such as a terminal illness. Make sure that any kind of incarceration in the past 2 years has not cost you a stable work history or was related to a dishonorable discharge.
Ready to apply for a VA Home Loan? Visit https://www.vahomeloancenters.org/. For information on how to apply for a USDA Home Loan, visit https://www.fedhomeloan.org/usda-home-loan-information-resources/. For information on an FHA Home Loan, visit https://www.fedhomeloan.org/fha/.