Government Loans
Government loan programs provide more opportunities for homeowners. These programs can help veterans, low-to-moderate-income borrowers and borrowers looking to buy rural residences.
VA Loans
VA loans are for current and veteran service members and eligible spouses. These mortgages have competitive interest rates and usually require no down payment. VA loans play an important role in helping those who serve and have served in the military buy a home. VA loans are guaranteed by the Veteran’s Administration (federal government). The single greatest benefit for qualified applicants is that they can purchase a house with no money down and essentially no out-of-pocket cash.
VA Loan Qualification Criteria
VA certificate: You will need to apply for a VA certificate of eligibility, which shows that you are eligible for a VA-backed loan. You can apply for the certificate on the VA’s website or by mail, or you can apply with our assistance.
Home qualification: The loan can be for a purchase or refinance. The homeowner must intend to occupy the home as their primary residence within a reasonable period of time after closing the loan. No one but the veteran and their spouse can be on the loan.
Credit score: Typically, a credit score of 620 is the minimum to obtain a conventional loan, and 740 is the minimum score you need to get the best rates available.
Down payment: There is no down payment requirement for a VA loan. In addition, there is no private mortgage insurance (PMI) for not being below 80% loan to value. The borrower must pay a VA funding fee that amounts to 0%-3.15% of the loan (not required for disabled veterans).
Ability to repay: Borrowers must show they have the ability to repay the loan based upon their current income.
Debt-to-income ratios: One of the main factors when determining your ability to afford a loan is your debt-to-income (DTI) ratio. Your DTI ratio is the relationship between your monthly debt payments and gross monthly income. This ratio needs to be reasonable to qualify for a conventional mortgage loan, meaning the amount you spend on monthly payments needs to be “reasonable” compared to your monthly income. Typically, your ratios need to be less than 42%, but it is possible for them to be higher.
Gift funds: Gift funds may be used with a VA loan.
FHA Loans
An FHA loan is a mortgage insured by the Federal Housing Administration. With a minimum 3.5% down payment for borrowers with a credit score of 620 or higher, FHA loans are popular among first-time home buyers who have smaller down payments or credit challenges.
The FHA insures mortgages to protect lenders in case of default, which is why FHA lenders are willing to offer favorable terms to borrowers who might not otherwise qualify for a home loan.
FHA Loan Qualification Criteria
Down payment: If you’ve got a credit score of 620 or higher, your FHA down payment can be as low as 3.5%.
Gift funds: You can use gift money for your FHA down payment, as long as the donor provides a letter with their contact information, their relationship to you, the amount of the gift and a statement that no repayment is expected.
Assumable: FHA loans are assumable, which means if you wish to sell your home, the buyer can “take over” your mortgage.
Mortgage insurance: When you get an FHA mortgage, you’ll make an upfront mortgage insurance payment (which can be rolled into the total amount of the loan) and make monthly payments thereafter. If you start with a down payment of less than 10%, you’ll continue to pay mortgage insurance for the life of the loan. Those with 10% down payments will pay FHA mortgage insurance for 11 years.
Credit score: Typically, a credit score of 620 is the minimum to obtain an FHA loan. If you’ve had credit issues, you may still be able to quality for an FHA loan. Usually within two or three years after financial hardship, you may qualify for an FHA loan.
Ability to repay: Borrowers must show they have the ability to repay the loan based upon their current income.
Debt-to-income ratios: One of the main factors when determining your ability to afford a loan is your debt-to-income (DTI) ratio. Your DTI ratio is the relationship between your monthly debt payments and gross monthly income. This ratio needs to be reasonable to qualify for an FHA loan, meaning the amount you spend on monthly payments needs to be “reasonable” compared to your monthly income. Typically, your ratios need to be less than 43%, but it is possible for them to be higher.
USDA Rural Development Guaranteed Housing Loans
The USDA loan is a mortgage option available to some rural homebuyers. USDA home loans are issued by qualified lenders and guaranteed by the United States Department of Agriculture (USDA). USDA Home Loans are particularly favorable to those living in rural or low-income areas. USDA Loans offer no money down, lenient eligibility requirements and competitive interest rates — due to the loan being guaranteed by the USDA.
Although USDA loans are similar to other mortgage loan types, they have one feature that sets them apart: the option for no money down. Borrowers can finance 100% of a home’s purchase price while getting competitive interest rates. With USDA loans, you and your home must qualify for the loan program. Your home must be located in a “rural” area, and it must be your primary residence.
USDA loan qualification criteria
Down payment: There is no down payment required.
Gift funds: Gift funds are allowed.
Credit: Applicants with a credit score of 640 or higher are eligible for the USDA’s automated underwriting system. Applicants below the 640 mark may still be eligible, but they are subject to manual underwriting, which can mean more stringent guidelines
Income limits: The USDA sets a maximum on the amount of adjusted annual income a household brings in at the time of the guarantee. This is to ensure the USDA’s intended recipients in the low-to-moderate-income group use the program.
Ability to repay: Borrowers must show they have the ability to repay the loan based upon their current income.
Debt-to-income ratios: Debt-to-income ratios for a USDA loan are typically limited to 41%.