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Buying a home for the first time can seem like a foreboding endeavor thanks to the often unstable state of the housing market. Thankfully, the United States Government offers several alternatives to private and conventional loans that make buying a home a real possibility for ordinary people. In this article I’ll list four different programs, the ways they work and their limitations. I’ll also provide links that provide even more information about each of these programs.
The FHA (Federal Housing Administration), is part of the HUD (US Department of Housing and Urban Development) and has been active since 1934. In a nutshell, FHA loans offer relatively low down payments, easy credit qualification and low closing costs. In fact, the down payment can sometimes be as low as 3.5% of the home’s total purchase price, and the loan can include the price of closing costs and other fees. The cost of fixing up an existing home can be included in the loan, and the loan can also be used to make a home energy efficient (via an FHA Energy-Efficient Mortgage). In addition to this, an FHA loan can be used to purchase a mobile home or manufactured housing. Due to the all-inclusive nature of FHA loans, they are often ideal for first time home owners. For more information, the HUD website is a valuable resource.
VA Loans For veterans of the armed services (including some Guard and Reservist members), a VA loan is often a wise and convenient choice. Qualified buyers can purchase a home with no down payment, no mortgage insurance premiums, receive a property value appraisal and enjoy low, fixed closing costs. In addition, a 1-year warranty on all homes is demanded from the builder in most cases. VA also offers loan and financial counseling to veterans. There’s no maximum VA loan, but most lenders cap the amount at $417,000. Prospective buyers must meet certain income and credit qualifications, and there are several clauses that make building a new home using a VA loan difficult. It also must be said that not all lending institutions are VA-approved. For more information about VA loans, Military.com provides a wealth of information.
The Rural Housing Service falls under the USDA (US Department of Agriculture) and provides both direct loans and guaranteed mortgage loans. In some specific cases, the RHS offers people in rural locations a direct loan based on their income and their ineligibility for other types of loans. In most cases, however, the RHS provides a guarantee on a loan issued by a traditional lender. The RHS will repay the lender if the buyer defaults on a loan, and also helps many people who would not otherwise be approved for a loan obtain financial assistance. People with poor credit and low income are much more likely to receive a loan with the RHS, a division of the USDA, supporting their request. As long as the buyer makes less than 115% of the medium income in his/her area, they qualify for no down payment and other benefits. The loan can be used to purchase (and fix up!) existing property or to buy a new home. Buyers must live in a rural area, meet very specific income requirements and, in most cases, have a good credit rating. For more information about RHS loans, visit the USDA.
Section 184 is the go-to program for Native Americans to purchase property on Tribal land. A buyer must be a member of a federally recognized tribe to qualify for Section 184. Created in 1992, the program makes a guarantee to private lenders so they can provide loans for those living on Tribal lands. If a home is on Tribal Trust Land, the buyer works with the BIA (Bureau of Indian Affairs) and HUD to turn the property into a leased entity for the duration of the mortgage + 10 years. This means that if the buyer forecloses, the lender purchases the lease and not the Tribal land itself. If the buyer already owns Trust land, there is no need for a leasehold estate. To qualify for Section 184, land does not need to be Trust land, it just needs to be located on a Native American or Native Alaskan estate. Lending limits are based on the current market and not on a buyer’s credit rating. With one of these programs standing behind them, any prospective home buyer should have the confidence they need to purchase a home without endangering their financial future. In any case, research, shopping around and asking as many questions as possible are the best resource to ensure long term stability.
Author bio: Tim Richmond is a passionate blogger who writes about the economy, finance and home ownership. He is an online publisher for 1st Tribal lending.