“How much house can I afford?” is among the most important questions you need to ask yourself when you are planning to purchase a home. Buying property is a large investment, so it is important to make sure you are financially prepared. Fortunately, the government offers many programs to ease the process and make it more affordable. Entities like the Federal Housing Administration (FHA) are able to guarantee your loans in order to win you lower down payment options and interest rates.
FHA loans are just one example of the ways you can access affordable home options. Many other government organizations offer similar benefits, especially for first-time and low-income home buyers, as well as service members. There are also options like rent-to-own homes which allow renters to use their monthly payments towards purchasing participating properties. Learn about these and other home buying resources below.
Loans insured by the FHA allow home buyers to secure properties with lower down payments and closing costs, as well as more lenient credit qualifications. According to FHA loan requirements, recipients are required to have a credit score of at least 500 and pay monthly mortgage insurance premiums (MIPs). Lenders may also examine work and payment histories when reviewing a loan application.
You can use an FHA loan calculator to help you predict the amount of your monthly mortgage payment, including the MIP and lower down payment percentage. However, other factors may also be included in your loan, depending on the type of FHA mortgage you choose. Several other options are available in addition to traditional loans, including:
Each of these options is subject to the same FHA loan limits, which are determined based on the local cost of living. Every county has its own minimum and maximum amounts for what the FHA is willing to guarantee, so home buyers must keep these in mind when choosing a property.
The Federal National Mortgage Association (FNMA), most commonly referred to as Fannie Mae, is another player to consider when you are searching for a manageable home loan. This association is responsible for purchasing and guaranteeing mortgages on a secondary market. These mortgages are then combined into mortgage-backed securities (MBS) and sold to financial institutions.
As a result of these efforts, lenders can continue issuing loans, and home buyers can access affordable mortgage rates. According to Fannie Mae guidelines, applicants must have no more than a 28 percent debt-to-income (DTI) ratio unless they are able to make a significant down payment. Financial records and credit score are also taken into consideration.
This association backs several types of loans, including the HomePath Home Ready Mortgage. This type of mortgage takes a Fannie Mae foreclosure and offers it with even more affordable loan options in order to get it off the market quickly. Other benefits for first-time homebuyers include homeownership education and closing cost assistance.
When homeowners find themselves in foreclosure on their FHA loans, their homes become the property of the U.S. Department of Housing and Urban Development (HUD). As a result, the HUD is able to offer these homes at below market value to qualified buyers. Other incentives are also often included in order to move these homes off the market efficiently.
For example, the Good Neighbor Next Door Sales Program allows community members like police officers, teachers and fire fighters to purchase homes at 50 percent of the list price. Qualifications for this option include a commitment to live in the home for at least 36 months.
In general however, anyone is eligible to purchase one of these homes as long as they have the cash or loan to make the purchase. To find a HUD home, you must visit the HUD’s website, where it places these property listings and organizes them by ZIP code. There, you can place bids on the property you are interested in.
Rent-to-own is an option that helps renters to become home owners through alternative means. Rather than pursuing the traditional home loan up front, renters sign a contract that allocates a portion of their rent payments towards the purchase price. This essentially serves as a down payment.
Interested renters can find rent-to-own homes listings online or through the help of a Realtor. While this option may be beneficial for home hunters who are working to build up their credit, it is often more complicated than renting. Therefore, interested renters should keep the following in mind:
Loans guaranteed by the U.S. Department of Agriculture (USDA) are aimed towards home buyers in qualifying rural locations across the country. In addition to choosing an eligible property, applicants must also meet the household income requirements to obtain a USDA loan, which vary largely by county. There are two types offered, including: