Home-Buyer Programs

“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.

FHA Loans

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:

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TIP BOX

Tip note of any repair needs before signing your contract, as many lease-to-own agreements make repairs the renter’s responsibility.
Tip note of any repair needs before signing your contract, as many lease-to-own agreements make repairs the renter’s responsibility.
  • The Energy Efficient Mortgage program. This type of loan factors in energy improvements made to your home that help lower the cost of utilities, including solar panels or new insulation.
  • The 203(k) Improvement program. These loans include funds for any repairs or renovations that need to be made to the home.
  • The Home Equity Conversion Mortgage program. This is a reverse mortgage program that helps qualified seniors convert their home equity into cash.
  • The Section 245(a) program. This is a graduated payment mortgage program for applicants expecting an increase an income. Monthly payments slowly increase over time to provide a shorter loan term overall.

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.

Fannie Mae Loans

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.

HUD Homes

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 Homes

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:

  • Maintenance and repairs may become the renter’s financial responsibility, depending on how the contract is outlined.
  • Purchase price and how much rent applies towards it each month should be clearly outlined in the contract to avoid issues later on.
  • Lease Option and Lease Purchase are two different options available for rent-to-own properties. Lease option means that at the end of the contract, renters choose whether to pay the remaining balance on the house or move out. Alternately, lease purchase means that the renter is locked into purchasing the house at the end of the contract.
USDA Loans

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:

  • Single Family Housing Direct loans. These loans are aimed towards applicants with a low or very low income, so the requirements are stricter. In addition to meeting income limits, they must not have access to safe and sanitary living conditions and be unable to obtain a loan by other means. Properties must be under 2,000 square feet.
  • Single Family Housing Guaranteed loans. These loans are offered to help applicants build, renovate or relocate an eligible property in a rural area. USDA loan rates guarantee 90 percent of loans through approved lenders.

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