South San Francisco, CA April 23, 2021 by Myriel Legaspi, USMC Veteran, VA Home Loan Centers
Purchasing a home is expensive, and it does not seem to be going down anytime soon. However, another thing that is not going down is the demand for homes. The millennial generation especially has a hard time entering the housing market and raising a family.
According to Business Insider, the average millennial is worse off financially than previous generations due to increased student loan debt and an inflated cost of living. Therefore, when it comes to buying a home, the current loan requirement of a 20% down payment is just too much to pay upfront.
To put it in perspective, if a home is worth $226,800, which is the average price for a home in the United States, then the down payment for a conventional home loan would be $45,360. According to the same article, when the average millennial has a net worth on average is about $8,000, the dream of buying a home seems like just that, a dream.
Thankfully, there are solutions for those who see $40,000 as too much to pay upfront for a home. The answer is in government-guaranteed home loans, administered by the U.S. Department of Agriculture (USDA), the Federal Housing Administration (FHA), and Veteran Affairs (VA). These loans are notable because the United States Government guarantees them, which allows for more lenient qualification standards.
USDA Home Loans
The USDA, which inspects our food while also enforcing federal legislature on our farms, and food, is also the administrator of loans for homes in rural communities. The loan is for people with lower-than-average incomes who want to live in rural development areas.
There are several benefits to using these loans that are perfect for people who cannot afford the down payment required for a conventional home loan. These benefits include a $0 down payment requirement, competitive interest rates, and low monthly mortgage insurance payments, making these loans perfect for low-income borrowers.
To be eligible for a USDA loan, the applicant must be a U.S. citizen, have a stable income, have a credit score of 640, and about 12 months of payments done on time. However, lower credit scores might still qualify for the USDA loan.
FHA Home Loans
FHA loans are some of the most widely used by first-time homebuyers due to their low eligibility requirements. It is one of the few loans where even someone with a credit score of 580 can qualify for a loan submit an FHA loan application. Some FHA lenders are willing to accept applicants with lower credit scores, although a higher down payment might be required.
Other eligibility requirements that make these loans so popular include people who have gone through a Chapter 7 or Chapter 13 bankruptcy qualify for the loan. However, Chapter 7 bankruptcy recipients need to have a two-year gap from when they declared bankruptcy to the signing of the loan. Chapter 13 recipients, on the other hand, require court documentation and 12 months’ worth of paying bills on time.
As far as down payments are concerned, FHA loans currently require a low-down-payment of 3.5%. However, there are ways to offset those costs by either borrowing the money from a friend or using FHA down payment assistance grants, which vary by state and agency giving out the loan. Qualifying for these loans usually requires applicants to prove that they need financial assistance to cover their down payment. Private companies administer these grants, and they all have their requirements.
FHA loans also offer several other benefits, including low closing costs, low monthly payments, and 15- to 30-year fixed-rate mortgages. Also, a new borrower can assume the loan if the original buyer decides to sell the property. FHA loan limits for more expensive counties like San Francisco County are $822,375 for a single-family home, $1,053,000 for a duplex, $1,272,750 for a triplex, and $1,581,750 for a fourplex.
VA Home Loans
Exclusive to Active-Duty Service Members, Veterans, and the surviving spouses of veterans, VA loans offer some of the best benefits out of any home loan out there. With benefits like $0 down payment requirement, low monthly payments, low-interest rates, no mortgage insurance premiums, and no prepayment penalties.
VA home loan requirements also require the applicant to have served active duty for 90 days during wartime and 181 days during peacetime. Also, members of the National Guard or military reserves must have served for at least six years to qualify for the loan. When it comes to credit score requirements, VA loans technically do not have a credit score requirement. However, real estate experts recommend that the applicant have a credit score of 640 or higher to ensure that they qualify for the loan.
As of January 2020, there are no longer any loan limits for first-time VA home loan borrowers. However, borrowers with more than one active VA loan are still required to follow loan limits based on the county. Currently, the loan limit for more expensive counties like San Francisco County is $822,375.
As a new generation of home buyers enters a housing market that keeps getting increasingly more expensive. Knowing what type of loans to take out can make all the difference as to whether they will afford their dream home. Government-backed loans and their reduction and removal of most home purchasing costs might be the solution for a new generation of home buyers.
Phil Georgiades is the CLS of FedHome Loan Centers, a brokerage specializing in first-time buyer home loans. He has been practicing real estate for 22 years. For more information about government home loans or to apply for a house loan, get in touch with us by calling (877) 432-5626.
FedHome Loan Centers is an FHA broker comprised of a privately held network of government loan specialists, counselors, Realtors® and mortgage professionals dedicated to empowering customers with sustainable home ownership.