The center of the American dream rests on one thing, homeownership. When individuals picture the life that they consider to be a success, they imagine themselves on a front lawn with their newly purchased home behind them, maybe in a nice area of Minnesota.
Homeownership feels like a significant stretch for many individuals. How do you go about the process of buying a home? Where do you find the loan?
Government-backed loans offer would-be homeowners an affordable option. You can own a home with an affordable mortgage thanks to government loan programs.
Let’s go over FHA home loans, USDA home loans, and all of the perks that come with them, and learn about the requirements and limitations of each.
What Are Government-Backed Loans?
When you apply for a mortgage with a conventional mortgage company, you’re putting your trust in a business or a company. Often, the conventional agency will have strict eligibility requirements that you may not meet. As a result, they will turn you down.
Conventional loans are backed by private lenders, not by the government. When you score a conventional loan, you, the borrower, have to pay for the insurance. Thus, conventional loans are riskier than government-backed loans, which are backed up by a secure federal agency.
Not all government loans are the same. They are backed by different government programs such as the Federal Housing Administration (FHA), the Department of Veteran Affairs (VA), and the Department of Agriculture.
When you apply for a government-backed loan, the agency you apply with guarantees a loan amount. This means the lender actually has the means to provide the loan amount, which protects the lender in case the borrower defaults and cannot repay the loan.
Because the government has the necessary funds to back your loan, you get a much cheaper interest rate with a government-backed loan, as well as a lower-to-no down payment option.
Government loans do typically come with eligibility requirements. Not just anyone can get one.
Federal Housing Administration loans, or FHA loans, usually have lower down payments and requirements compared to conventional loans. As a result, first-time homebuyers across the country, including Minnesota, often apply for an FHA loan.
Anyone can apply for an FHA loan, not just first-time buyers. You can actually have many FHA loans in your lifetime. You just cannot have two FHA loans at once.
If you already have an FHA loan, you cannot apply for another one. However, once you’ve paid one-off, you can seek out an additional FHA loan.
FHA loans also have a limit. You can apply for up to $356,600 currently.
Also, because FHA insures your mortgage, lenders will often give loans with lower qualifying requirements. You thus will be able to qualify more easily.
While most conventional lenders scrutinize your credit, you can still get an FHA loan with a poor credit score. FHA does require a 3.5 percent down payment, but the money does not have to come from you. You can pay using a family member, charitable organization, employer, or even a down-payment assistance program.
FHA also works hard to keep you in your home, even when hard times hit. They want you to have a house, so they will help you avoid foreclosure.
VA loans are exclusively for current military personnel, veterans, and surviving spouses. The VA does not have a minimum credit score requirement to apply for a VA loan. With that said, most lenders require a score of at least 580.
To get a VA loan, you have to go through a basic process of prequalifying and preapproving. You will begin by seeking prequalification with Veterans United Home Loans. Then, you’ll seek a loan preapproval letter from a lender who examines your financial information and verifies that you can pay for a home.
With your pre-approval letter in hand, you begin to negotiate a contract with a seller, using a VA loan savvy agent who understands VA loans. Then you go through the VA appraisal and underwriting process.
You end by signing the legal documents and paperwork at the loan closing, where the former homeowner hands you the keys to your new home.
USDA loans come with backing from the Rural Development Guaranteed Housing Loan Program. Borrowers who have low to moderate-income can purchase a home in a rural or suburban area in Minnesota with a standard USDA loan.
USDA loans do not require a down payment, but you do need a credit score of 580 or above. Dense urban areas do not qualify for a USDA loan. So if you believe you’ve found your dream home, check the USDA website where you can see if your home is eligible.
If you qualify, you can purchase, rehabilitate, build, improve, or relocate a house as your primary residence if you do so in an eligible rural area, all with 100 percent financing. You do not have to put any money down if you qualify.
Qualifications are basic. Your income cannot exceed 115 percent of the current median household income in the country. You also must agree to occupy the home as your primary residence, and you must be a U.S. citizen, Qualified Alien, or U.S. non-citizen national.
USDA created this program to promote rural living and help smaller communities thrive. It’s an attractive offer if you want to live in a small town or rural area.
Investigate Your Options in Minnesota
When you dream of owning your own home, do not let conventional loan requirements discourage you. Investigate the options with government-backed loans. Before long, you will find yourself in your dream home living the life you fantasized about.
Do you need a home mortgage? Contact us today. We are committed to outstanding customer service and to building life-long customer relationships.
We treat you like family, keeping your best interests in mind. Our company focuses on a team approach to garner your trust. We offer extended services, using the most up-to-date technology to find the best financing options for you.
Give us a call today and let us help put you in your dream home in Minnesota.