The U.S. government has made it easier for hundreds of thousands of Americans to buy homes through providing various government-insured mortgages. Many citizens have purchased a house with these mortgages when it wouldn’t have been possible with the other conventional home loans. For more information about these special mortgages, continue reading!
FHA loans are backed by the Federal Housing Administration. These loans make it possible for you to buy a home, even if you don’t have a perfect credit score or aren’t able to provide a large down payment. This is because they have more lax requirements – borrowers must provide a 3.5% down payment (other loans require a down payment of 20% of the purchase price of the home).
These loans are available for anyone trying to purchase or refinance a primary residence, but are mostly popular with first-time homebuyers. They come with mortgage insurance in case the borrower is unable to repay the loan. FHA loans are usually fixed-rate loans with either 15 or 30-year terms, and 1% of what you pay goes towards the mortgage insurance.
VA loans, granted by the U.S. Department of Veterans Affairs, provide flexible, low-interest mortgages for members of the military (both active duty and veterans) and their families. They don’t require a down payment or private mortgage insurance, and they offer leniency with credit scores. You are expected to pay a funding fee that is added onto your monthly payments, or may be paid upfront at closing. These fees serve to offset the program’s cost to taxpayers.
USDA Loans are given by the U.S. Department of Agriculture. They assist moderate- to low-income borrowers in buying houses in rural areas. To qualify, you must purchase a house in a specified USDA-eligible area and meet other income limits (for example, the amount of debt you have cannot exceed your income by more than 41%). Most of these loans require no down payment and offer discounted interest rates, but you will have to purchase mortgage insurance.
These loans are perfect for those who struggle financially and are looking to purchase a home in a small, rural town. “Rural” doesn’t necessarily mean “countryside farmhouse.” It simply means that the town is under a certain population count – it can even be a suburban community.
Pros and Cons
Pros: Government-insured loans require lower down payments and have lenient credit requirements. They make homeownership accessible to everyone – since they are secured by the government, sellers are more likely to sell homes to lower-income applicants who are seen as a risk. In addition, buying a home allows you to build equity and credit, which helps you strengthen your finances and progress with your other financial goals.
Cons: The mandatory mortgage insurance premiums can be expensive, and cannot be cancelled on most loans. You will also have higher overall borrowing costs. In addition, you will likely need to provide more documentation to prove your eligibility for the loan.
Government-insured loans have helped countless Americans buy houses. However, you need to find a specialized mortgage company that is registered by the government to provide you with these loans. At American Mortgage Resource, Inc., we are able to help you find the home loan options that will help you the most.