Housing Loans, Grants and Assistance Explained

Many homebuyers will rely on housing assistance and subsidized loans as buying a house is a major life step and an enormous investment. Mortgages are essential in the housing market because very few people have enough cash to pay for a new home with a lump sum. Conventional loans have always been a popular option, but there are now many types of mortgages available for home buyers.

There are options available for bad credit home loans, rural housing, accessible housing for individuals with disabilities and more. In addition to mortgages, there are a few government programs that provide housing grants to local agencies in order to help low-income families afford homeownership. Numerous federal and local housing and housing assistance programs are available to help home buyers finance their purchase. Knowing how they work can make the process far less stressful in the long-run.

Housing Loans

Before you sign a long-term financial contract like a conventional or an FHA home loan insured by the Federal Housing Administration (FHA), it is vital that you know what you kind of business agreement you are getting into. Knowing the differences between the various mortgage options can be the key to choosing the best loan for your housing needs. Some of these options are better for buying a house with bad credit, while others may target specific groups of homebuyers such as veterans. A few of the most common types of home mortgage options include:

  • Conventional loans.
  • Veterans Affairs (VA) loans.
  • FHA-insured loans.
  • United States Department of Agriculture (USDA) loans.
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If you can’t get a traditional home loan, review government or government-backed programs that offer loans with better rates and flexible eligibility requirements.
If you can’t get a traditional home loan, review government or government-backed programs that offer loans with better rates and flexible eligibility requirements.
Conventional Loans

Mortgages from private lenders that are not backed by the government through any housing assistance programs or housing grants are referred to as conventional loans. Although they are more of a risk financial venture than government-backed mortgages, conventional loans have certain benefits such as:

  • Higher loan limits than FHA loans.
  • The option to choose either adjustable-rate or fixed-rate loan terms.
  • Being available to use for second homes and investment properties.
  • No private mortgage insurance requirements for home buyers who put over 20 percent down.
VA Loans

Service members, veterans and surviving military spouses may be eligible to receive housing assistance through loans from the Department of Veterans Affairs. Depending on when, where and how long a veteran served, they may be eligible for a VA loan. Any homebuyers who are eligible to receive VA loans are highly encouraged to do so due to the helpful benefits such as the following:

  • Eligible borrowers will not have to pay a down payment on their home mortgage in most cases.
  • VA loans consistently offer the lowest interest rates of all types of housing loans.
  • There are no prepayment penalties on VA loans.

Note: Any service member who receives a dishonorable discharge will not be eligible for a VA loan.

FHA Loans

FHA loans are mortgages that are backed by the government and insured by the Federal Housing Administration. These types of loans are popular amongst first-time homebuyers because they typically require lower minimum credit scores and down payments than conventional loans. However, FHA loans can only be use for purchasing a primary residence, and all properties must meet guidelines established by the HUD. Some of the primary advantages of an FHA home loan include the following:

  • FHA credit score requirements are lower than conventional loans.
  • More affordable down payments than conventional loans.
  • Higher debt-to-income ratios.

Although FHA loans are usually a good option, they often come with higher interest rates on mortgages. These loans also require mortgage insurance, regardless of the down payment. Homebuyers are also limited to purchasing a primary residence with an FHA-backed mortgage.

USDA Loans

A USDA home loan is a mortgage that is subsidized by the U.S. Department of Agriculture in order to assist the development of rural parts of the country. These mortgages provide some of the best terms in a housing loan, such as zero down payment and low mortgage interest rates. Generally, these USDA loans are offered to low-income applicants, but the threshold for low income can vary in different areas of the country. In order to qualify, a homebuyer must meet USDA loan requirements including:

  • U.S. citizenship or permanent residency.
  • A monthly payment that comes out to 29 percent or less of a household’s monthly income including a mortgages:
  • o Principal.
    o Interest.
    o Insurance.
    o Additional taxes.

  • An acceptable credit history.
Credit Score Requirements for Housing Loans

Since home loans are a large financial risk, lenders want to reduce their risk by checking a borrower’s credit score before giving them a home mortgage. Typically, the higher a borrower’s credit score is, the better interest rates and loan terms they will be eligible to receive. Certain loan types also have general minimum credit score requirements for borrowers:

  • Conventional Loans – A credit score of 620 or higher
  • FHA Loans – A credit score of 580 or high, although scores ranging from 500 to 579 may be accepted.
  • VA Loans – A credit score of 620 or higher, although some borrowers will accept scores as low as 580.
  • USDA Loans – A credit score of 640 or higher.
Government Grants for Housing

The United States Department of Housing and Urban Development (HUD) provides housing grants for Americans to purchase homes, although these grants are not made directly to individuals. Generally, these funds are allocated to local governments and non-profit organizations who provide financial assistance and counseling to applicants in the community.

Note: No type of housing grant will cover 100 percent of the cost of a home.
Section 8 Housing Eligibility

Very low-income families, especially those with elderly or disabled members, may be eligible for housing assistance through the HUD low income housing program called Section 8. Now known as the Housing Choice Voucher Program, Section 8 was created to help families afford adequate, safe and sanitary housing in the private market. One major benefit of Section 8 is that beneficiaries can find their own housing, including townhouses, single-family homes and apartments, and use their housing vouchers to help afford the rent.

In order to receive housing vouchers, you must meet the Section 8 eligibility requirements, which include:

  • Being a U.S. citizen or specified category of non-citizen with eligible immigration status.
  • Being within the Section 8 income limits for your family’s composition.
  • o This includes your family’s income and assets.
    o Generally, your family’s income will need to be below 50 percent of the median income in the county or metropolitan area.

Note: Due to the limited funding for the program, not all families and individuals who meet Section 8 eligibility requirements will receive benefits from the program.



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