More than two centuries after the first mortgage service began in 1781 and almost a century after the 1929 home mortgage crisis, mortgage lending policies in the US have since been designed to be more adaptive. This involved the lengthening of payment terms from seven to up to 30 years or more, fully amortizing mortgages, creating a robust market for mortgage insurance, and more.
For home buyers, this means that you have more chances of keeping your home in case you find yourself in a financial crisis; this means that you have a larger safety net in case you fail to pay your mortgage on time; and lastly, this means that you have friendlier exit strategies in case you no longer want to continue keeping your home. One indirect result of mortgages being already flexible is the rise in the number of first-time homebuyers even in the wake of the CoViD-19 pandemic.
In 2019, the Consumer Financial Protection Bureau traced a total of 9.2 million loans from 11,200 mortgage companies — a slightly lower count than the previous year. In this article, we briefly brush through the most common types of home loans and discounts for first-time homebuyers, excluding home renovation loans.
FHA LOAN
The FHA Loan is very popular among first-time homebuyers because it requires a lower downpayment and credit score than a lot of conventional lenders. Even though this is a government-backed loan, this is offered by private lenders who are FHA-accredited. Because the FHA loan requires a downpayment lesser than the typical 20%, homebuyers are mandated to pay the FHA mortgage insurance. The FHA mortgage insurance ranges from 0.45% – 1.75% of the total loan amount, and its paid either upfront or annually for 11 years.
In addition, to qualify for an FHA loan, the house you are buying should be your principal residence, and the price should fall under the maximum loan amount for your location. Lastly, when applying for an FHA loan, it’s recommended to shop around for companies. This is because even though the loan rates are fixed, companies have different service costs.
VA Loan
The Veteran Affairs Home Loan is open to service members, veterans, and surviving spouses of service members who died on duty. Created in 1944, this type of loan doesn’t require a good credit score, downpayment, and private mortgage insurance. Under the VA loan, there are four types of loans:
- Purchase Loan (Direct to VA)
- Native American Direct Loan Program (VA-backed)
- Interest Rate Reduction Refinance Loan (VA-backed)
- Cash-out Refinance Loan (VA-backed)
Home renovations can also be covered by a VA loan as long as the changes will make your home more energy-efficient and the upgrades are simultaneous with purchasing the house. You can choose between a 15-year fixed term and a 30-year fixed term for VA Loans.
USDA Loan
USDA provides different types of loans for homes and businesses. For homebuyers, applicable loans include the:
- Single-Family House Guaranteed Loan
- Single-Family Housing Direct
- Multi-Family Housing
- Water and Environmental Guaranteed Loan
- Water and Environmental Direct Loan
With this loan, you can avail of lower interest rates and buy a home with no downpayment as well. However, the USDA only grants loans to selected areas, mainly rural/suburban areas. This is because the loan was created for people who are struggling financially. That’s why, to qualify for the USDA loan, your gross income shouldn’t be 115% more than the median income in your locality.
Fannie Mae and Freddie Mac
The Fannie Mae and Freddie Mac loans were created to provide a secondary source of mortgage funds. These institutions buy both conventional and government-insured mortgages and offer them to other private lenders. You cannot apply directly to the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FMCC) for this. Instead, you can apply for them in private mortgage lending companies as long as you have a minimum FICO credit score of 620.
Fannie Mae and Freddie Mac were established to make mortgages more affordable and accessible. Since Congress created these, both have more giant safety nets in case of another crisis. Examples of these are the Fannie Mae Covid-19 Mortgage Relief Program and the Freddie Mac Covid-19 Mortgage Relief Program.
1 Dollar Homes
The 1$ Home Initiative was first implemented by the Housing and Urban Development Council for very low-income families. As the name suggests, you can buy a home for 1$ only. Under the HUD guidelines, “Dollar Homes” are not actually listed for 1$, but people can make a $1 offer on the home via a HUD-approved broker.
$1 homes are usually foreclosed homes or properties that have been deemed uninhabitable. So, if you buy a $1 house, you can expect to pay for the needed renovations.
Consequently, you can also visit your local county office to ask whether they have this type of home on the list. Different counties, cities, and states have different protocols and qualifications for you to be awarded a $1 home. For example, some cities in the US require the homebuyer to live in that house for three consecutive years and finish the renovations within 18 months of purchasing it. If you don’t mind spending on renovations, $1 houses are a great steal.
Good Neighbor Next Door Program
This program is offered to full-time law enforcers, pre-kindergarten to 12th-grade teachers, firefighters, and emergency medical technicians who wish to buy a home in HUD-recognized “revitalization areas”. Under this program, you can purchase a home for 50% of its sale price. The HUD provides a list or map of revitalization areas around the country. Likewise, you can also check your county office for an updated list since local governments can ask the HUD to declare a place as a revitalization area.
With thousands of mortgage loans in the market, you’ll need help identifying which one is suitable for you. You can contact us at HomeSoldGA (770 668 4888), and we can find a Georgia house that best fits your needs and situation.