Housing Loans, Grants and Assistance Explained

Many homebuyers use housing assistance and subsidized loans because buying a house is a huge investment and a major life step. Mortgages are key in the housing market because very few people have enough cash to pay for a new home.

Conventional loans have always been a popular option, but there are now many types of mortgages for home buyers.

There are options for bad credit home loans, rural housing, accessible housing for people with disabilities and more. In addition to mortgages, there are a few government programs that give housing grants to help low-income families afford a home.

A few 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.

About Housing Loans

Before you sign a conventional or FHA home loan insured by the Federal Housing Administration (FHA), you need to know what kind of agreement you are getting into. Knowing the differences between the different mortgage options can help you choose the best loan for your housing needs. Some of these options are better for buying a house with bad credit, while others may just be for specific groups, such as veterans. A few of the most common types of home mortgage options are:

  • 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.
About Conventional Loans

Mortgages from private lenders that are not backed by the government are called conventional loans. Although they are more of a risk than government-backed mortgages, conventional loans have benefits like:

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

Service members, veterans and surviving military spouses might be able to get housing assistance through loans from the Department of Veterans Affairs (VA). Depending on when, where and how long a veteran served, they may be eligible for a VA loan.

Any homebuyers who can get VA loans should do so because they have many benefits, like:

  • Eligible borrowers will not have to pay a down payment on their home mortgage in most cases.
  • VA loans 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.

Find Out About 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 for first-time homebuyers because you can have a lower credit score and down payment than conventional loans. However, FHA loans can only be used for a primary residence. That means you can’t use them for investment properties. Plus, all properties need to meet the HUD’s rules.

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 can have higher interest rates on mortgages. If you use this type of loan you’ll also need mortgage insurance even if you give a big down payment.

About USDA Loans

A USDA home loan is a mortgage that is subsidized by the U.S. Department of Agriculture. These loans are meant to help people who live in rural parts of the country. These mortgages have some of the best terms in a housing loan, such as zero down payment and low mortgage interest rates.

Usually, these USDA loans are offered to low-income applicants, but the actual income requirements change from one place to another. In order to qualify, you need to meet USDA loan requirements including:

    • An acceptable credit history.
    • 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 mortgage’s:

o Principal.
o Interest.
o Insurance.
o Additional taxes.

 

Credit Score Requirements for Housing Loans

Since home loans are a large risk, lenders look at your credit score to make sure you’re going to pay back your loan. Usually, the higher your credit score is, the better interest rates and loan terms you could receive. Certain loan types also have minimum credit scores:

  • 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.
Learn About Government Grants for Housing

The United States Department of Housing and Urban Development (HUD) has housing grants for Americans who want to purchase homes. However, these grants aren’t given directly to individuals. Instead, these funds are given to local governments and non-profit organizations that help their communities.

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

How to Qualify for Section 8 Housing

Very low-income families (especially ones with elderly or disabled members) may be able to get housing assistance through Section 8. Now known as the Housing Choice Voucher Program, Section 8 was created to help families afford housing. One major benefit of Section 8 is that people who use it don’t need to live in government housing. Instead, the program lets them find their own housing, including townhouses, single-family homes and apartments, and use their housing vouchers to help afford the rent.

To get housing vouchers, you need to 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.

This includes your family’s income and assets. Generally, your family’s income will need to be below 50 percent of the median income in the county or metropolitan area.

Note: Since there’s limited funding for Section 8, even people who are eligible may not be able to enroll in the program.



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