Buying a home is expensive! Without even considering the cost of the loan down payment, a buyer could spend more than two thousand dollars on investigating the property once under contract. A conventional loan often requires a 20% down payment. But there are several other options out there for home buyers that make affording their first home more possible.
FHA Loans are an ideal loan for a first time buyer because they require little money down and they are easy to qualify for. When using an FHA loan, the money to pay for the home is borrowed from traditional lending institutions, but they are insured by the United States government’s Federal Housing Administration. Because of this insurance, the lender is accepting less risk. If the buyer were to default on the loan, the FHA will pay the premium payment. The borrower pays an annual or monthly insurance premium to help alleviate the risk as well.
USDA Loans are a great opportunity for first time buyers, requiring no money down for the loan. The purpose of the USDA loan is to encourage development in rural areas. However, the term rural in this case is somewhat subjective. I have often been surprised at properties that qualified for the USDA loan. You can check whether a particular property qualifies for the Rural Development loan on the USDA website.
The USDA loan has other requirements as well, such as minimum income requirements and owner-occupying the home for at least one year.
In addition to requiring no money down, the rates tend to be better than FHA and you can even finance in closing costs. However, you will need money set aside to pay for any deposits in the Offer to Purchase Contract as well as for inspections. While these can be pricey, the USDA truly makes homeownership accessible for many.
If you ever served in the military, you probably qualify for a VA loan. Many veterans are not even aware that they qualify for a VA loan. Like the USDA, VA has a $0 down benefit for all loans. Also, if you have a disability rating the funding fee is waived as well, which can save thousands of dollars over the life of the loan.
Unique Features of Government Loans
A unique feature of government loans that many people are unfamiliar with is their assumability. An assumable loan means that you can sell the loan with the property. The buyer still needs to be approved by a lender. And in the case of a VA loan, the buyer does NOT need to be a veteran.
Assumption can be a valuable asset, especially if the mortgage rate is low and standard rates have climbed since the loan originated. For example, if you purchase a home with an assumable loan when interest rates were 3.5% but they have climbed to 6% by the time you are ready to sell, you may be able to get a higher price for the home, if the assumable loan is advertised properly. Every 1% change in interest rate is equal to a $10,000 price difference in affordability. So an interest rate difference of 2.5% would mean a buyer could afford an additional $25,000.
Appraisal & Inspection
Government loans are all subject to a government appraisal, which is kind of a mix between a home inspection and an appraisal. Unlike a standard appraisal, the FHA, VA and USDA appraisal also include a limited inspection of the property. However, this inspection is limited to a short list that might impact the properties ability to appraise. It is not a thorough and complete inspection like what is done by a licensed home inspector. FHA, VA and USDA all recommend getting a complete home inspection of the property in addition to the home appraisal.
Movement Mortgage Loan with Down Payment Assistance
The final option for first time buyers is a new program from Movement Mortgage called the MAP or Movement Assistance Program. This is a program in which Movement supplies a grant to be used as a down payment. This grant does not need to be repaid and qualified borrowers are eligible for a 97% loan with a 3% down payment assistance grant. This is basically another option for a no money down loan.
For more information about financing a home check out:
For more from Ellen, check out her real estate blog here: http://www.harmonyrealtytriangle.com/blog/