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Fill in this short contact form to be contacted about government-backed home purchase programs. Learn more about available programs and qualification requirements below.
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There are several federal government programs designed to help Americans purchase a home. Each of these programs has unique benefits and requirements.
General requirements:
1. Minimum credit requirements: You normally want a middle credit score of 620 or higher to qualify for a VA or FHA loan, although a score of 580 or higher can work if you have strong income and plenty of savings to handle down payment requirements. It is possible to qualify for a VA or FHA loan with credit scores below 580, but you generally need strong income and fairly large savings to be approved. For example, with FHA loans a 10% down payment is required if the credit is below 580.
At least a 620 middle credit score is generally required to qualify for a Fannie Mae or Freddie Mac conventional loan.
A 660 middle credit score is best to have a good shot at being approved for a USDA loan.
Also, you normally need to be 2-3 years out of any home foreclosures or chapter 7 bankruptcies.
2. Income requirements: To qualify for a home purchase loan, you will need to show the ability to comfortably make your new payments. You normally need to show that your gross monthly income (meaning income before taxes and other deductions are taken out) is more than twice the combined minimum monthly payments on all of monthly debts, including the new mortgage payments.
As an example, if a family’s before-taxes income is $5000 per month, they would want the total payments on their debts (including the new mortgage, car payments, student loans, credit cards, and so on) to be no more than 50% of $5000, or $2500 per month. Contact us to speak with someone who can run calculations on your debt to income ratios.
Another useful rule of thumb: You usually can qualify for a loan that is no more than 4 times your gross annual family income (assuming other debts are not too high). So if the gross annual income is $60k, assume around $240k as the maximum potential loan amount.
Available Programs
Here are some basics on the most prominent government-backed home purchase programs:
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FHA program
– Requires just 3.5% of the loan amount as a down payment. (With FHA purchases, it is wise to have at least 4% of the purchase price available to help cover the appraisal fee and other costs at closing)
– Available everywhere in the U.S.
– The FHA has an up front mortgage insurance fee of 1.75% of the loan amount rolled into the loan and then has a monthly mortgage insurance fee for the life of the loan
– There are limits to the maximum loan size depending on to state/county the home is in
– The FHA program has the most lenient underwriting standards with regard to past credit problems and medical collections of any of the major home loan programs
VA program
– Only available to military veterans with VA eligibility
– No down payment required
– No ongoing mortgage insurance
– Lenient credit score requirements
– The VA has an up front funding fee that rolls into the loan (up front VA fee waived when veteran has VA disability status)
USDA rural housing program
– This purchase program only applies to homes designated as being in rural areas by the USDA (contact us to check on eligible properties)
– No down payment required
– Requires a 1.0% guarantee fee rolled into the loan and small monthly mortgage insurance fee
– There are limits to the amount of income a family can earn to be eligible for this program. Families that make too much money will not qualify.
– Underwriting and credit score requirements on USDA rural housing loans are generally more stringent than FHA loans
Fannie Mae or Freddie Mac conventional mortgages
– Normally requires at least 5% down (3% down is feasible for first time homebuyers with excellent credit)
– Has somewhat stricter income and credit requirements than FHA or VA loans
– No mortgage insurance with a down payment of 20% or more. Down payments of less than 20% require mortgage insurance.
– Loan size up to $766,550 everywhere, even higher loan limits in some high cost areas
There are also other local government programs all over the country that can help with a home purchases. Plus down payment assistance programs are available for the FHA and Fannie/Freddie programs. Contact us to learn more.