fbpx

MoneyMagpie

Join MoneyMagpie today!
Log in or Register.
Jan 17

Know Your Options for Getting a Mortgage Loan

Reading Time: 4 mins

Are you worried that you’ll never be able to afford a home of your own? Well, a conventional home loan with 20 percent down isn’t your only mortgage option these days. There are actually several options designed to help first-time homebuyers get into homes with down payments as low as 3.5 percent for most borrowers, or zero percent for some borrowers. If 3.5 percent is still too much down payment for you, state and local down payment assistance programs can help you put the cash together to make a down payment on your first home.

Your primary options for getting a mortgage loan without putting 20 percent down are Federal Housing Administration (FHA) loans, Department of Veterans Affairs (VA) loans, and U.S. Department of Agriculture (USDA) loans. If you meet certain requirements, you may be able to qualify for a Good Neighbour Next Door home or a special loan program from Fannie Mae or Freddie Mac. Here are the loan options you need to know about if you want to buy your own home.

FHA Loans

FHA loans are backed by the Federal Housing Administration, but you get one through a regular home lender, like a bank or credit union. You can qualify with a credit score of 500 to 580 and a down payment of 10 percent, or a credit score above 580 and a down payment of 3.5 percent. You have to be a first-time homebuyer, which means that you can’t have owned a house within the past three years. If you owned a house more than three years ago, it doesn’t count for the purposes of an FHA loan.

USDA Loans

USDA loans are backed by the U.S. Department of Agriculture, and they’re intended to help low-income families buy homes in underserved areas. You can get a USDA loan with zero percent down and a credit score of at least 640. Contrary to what the name might suggest, you don’t have to be buying a farm in order to qualify for a USDA loan. The home just has to be in a qualifying area. Most qualifying homes will be in rural areas, but some suburban homes qualify, too.

VA Loans

If you’re an active duty service member, a veteran, or the spouse of a military member who died in the line of duty or due to a service-related disability, you can qualify for a VA mortgage loan. The VA doesn’t set a minimum credit score for these loans, so theoretically you could get one with a credit score below 500, but lenders may set their own credit score requirements for VA loans. The VA doesn’t require a down payment either, so you may be able to get a VA loan with zero down, but again, lenders may require a down payment. If you’re looking into a VA loan, it’s a good idea to shop around to get the best deal from a lender.

Good Neighbour Next Door Program

If you work as an elementary (pre-k to grade 12) teacher, a law enforcement officer, an emergency medical technician (EMT), or a firefighter, you may qualify to buy a house through the U.S. Department of Housing and Urban Development (HUD) Good Neighbour Next Door program. The minimum credit score requirement is 500 and you can put as little as $100 down. You’ll also get 50 percent off of the house’s listed price, and the houses are usually foreclosures, so they’re already discounted. You have to live in the house for 36 months to get the discount.

Freddie Mac Home Possible Loan

The Freddie Mac Home Possible loan is a conventional mortgage loan with a minimum credit score requirement of 660 and a three percent down payment. You can’t make more than 80 percent of the median income for the area in which you’re buying, and you must buy in an underserved area.

Fannie Mae Conventional Loan with 3 Percent Down

Fannie Mae conventional loans are available to borrowers with credit scores of 620 and with down payments as low as three percent. If you put down less than 30 percent on a conventional loan with Fannie Mae, you’ll have to buy private mortgage insurance (PMI). Once you have 20 percent equity in your home, you’ll be able to cancel the PMI.

Fannie Mae HomeReady Loan

The Fannie Mae HomeReady loan requires a minimum credit score of 620 and three percent down. You also have to take a homeowner education course. You can use money from gifts and grants to help fund your down payment.

State and Local Down Payment Assistance Programs

If you’re having trouble putting together a down payment on your home, you should look into down payment and closing cost assistance programs for your state. You may be able to get a grant, which doesn’t need to be paid back, or a loan to help with the cost of your down payment.

Don’t give up on your dream of homeownership just yet. You might not have much money, but there are home loan programs available to meet the needs of lower-income borrowers. You just need to ask for the right loan product, and you could be moving into your own home before you know it.

DisclaimerMoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.

WHAT DO YOU THINK?

0 0 votes
Article Rating
Subscribe
Notify of
guest

0 Comments
Inline Feedbacks
View all comments

Related Articles

Experian Financial Control
 

Make Money and Save Money

ideas for everyone
 
Send this to a friend