Buying a home is part of the American dream. For more than half of a century, Americans have been set on finding homes to hang their hats. Owning a home is a sign of stability and pride. However, financing a home can be a nightmare that interrupts the American dream.
Amid an economic crisis and tight credit market, getting favorable terms on a conventional loan is unlikely. Down payments soar as high as 25 percent, and interest rates pack a serious punch every month. Couple that with private monthly mortgage insurance, and your pockets empty fast. In some cases, prospective homeowners struggle to even qualify because of less-than-perfect credit.
But different government loan programs relieve the cold sweats, tossing and turning caused by the home financing nightmare. Instead of directly issuing the loans to borrowers, these programs guarantee a loan amount to the lender in case of default. As a result, lenders look forward to issuing loans through these programs with more borrower-friendly benefits. The Federal Housing Administration, Department of Agriculture and Veterans Affairs each designed programs to fit the needs of different borrowers.
FHA Loans
Operating for almost eight decades, the FHA loan program appeals to first-time homebuyers. Unlike conventional loans that require borrowers to have savings, the FHA doesn’t require borrowers have savings or checking accounts. FHA loans’ interest rates only vary within 0.125 percent of conventional loans. Borrowers with only above-average credit scores can still lock in lower rates for fixed-, adjustable-, long- and short-term mortgage plans.
When combined with other loans, borrowers have the potential of paying zero money down, but usually the down payment is 3 percent.
USDA Loans
Originally designed for low- to middle-income families in rural areas, USDA loans come with a bunch of financial benefits. Borrowers can finance more than 100 percent of the home in case it needs repairs. The no-money-down feature draws the most attention for USDA loans. Without private monthly mortgage insurance, monthly payments fare well compared to conventional loans’. After becoming more accessible, the program’s popularity soared in 2008 and 2009, almost causing the program’s demise for this fiscal year.
VA Loans
As a reward for their service, the Veterans Affairs Home Loan Guaranty program helps veterans, active-duty military personnel and their families settle down in homes of their choosing. Much like the USDA loans, VA loans feature no down payments for qualified borrowers, and no private monthly mortgage insurance. Interest rate caps for active-duty military members make VA loans more attractive.
Credit requirements and financial history expectations make qualifying for VA loans less difficult. Even borrowers with a foreclosure or bankruptcy in their past may still be eligible. To learn more about VA loans, contact a VA-certified lender.
With these options available, it’s important to figure out which program best suits you. Not every first-time homebuyer capitalizes on these programs, but they should be considered. After all, they may help you avoid another nightmare.
This article was a guest blog written by VA Mortgage Center.com. For more information be sure to check the site out.
Photo Credits: Photos8.com
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