The housing market was blazing for more than two years, driven by record-low interest rates nationwide. Now, in 2022, the market has finally begun to cool, which may leave aspiring homeowners uncertain about their best options. If you’re hoping to join the ranks of homeownership, it’s understandable if you feel confused or even overwhelmed. This is especially true if you have less-than-perfect credit or you haven’t yet saved the traditional 20% downpayment. You might be wondering: Are there any grants for low-income families to buy a house? What about government home loans for first-time buyers?
And how exactly does government financing work?
In this post, we’ll outline your options for government home loans. Keep reading to learn which one is best for you!
Federal Housing Administration (FHA) loans are the go-to choice for many first-time home buyers. The FHA regulates and insures loans made by private lenders to help Americans become homeowners.
What makes an FHA loan so popular and appealing?
For one thing, they allow for down payments as low as 3.5%. This is a huge incentive for low-income families or others who struggle to save the traditional 20% downpayment. Rather than saving $50,000 to buy a $250,000 home, you can make a downpayment of only $8,750 and finance the rest with an FHA loan.
FHA loans also allow for lower credit scores than conventional loans. To qualify for the 3.5% downpayment, your credit score needs to be 580 or higher.
Another bonus of FHA loans is that there’s no penalty for prepayment. If your financial situation changes while you own the home, you can make extra payments on the principle with no penalties.
Types of FHA Loans
There are a number of different FHA loans designed for first-time buyers and seasoned homeowners alike. Here’s a quick overview of the most popular options.
- FHA fixed-rate home loans: Monthly payments and interest rates remain the same for 15-30 years
- Adjustable-rate mortgage (ARM): Lower interest rates and monthly payments at the beginning of the loan term
- Rehabilitation loan or Section 203(k): Combined financing to purchase and renovate a “fixer-upper” home
- Streamline home loan: Allows existing homeowners with an FHA mortgage to refinance without an appraisal
Your local mortgage expert will be happy to discuss these FHA loan options with you in more detail.
Did you know it’s possible to get a home loan with no downpayment, no mortgage insurance, and no pre-payment penalties? Thanks to the Department of Veterans Affairs, this almost-too-good-to-be-true scenario is a reality.
You are likely eligible for a VA loan if:
- You’re military personnel on active duty for at least six months
- You’re a member of the National Guard or reservist for at least six years
- You’re a veteran who served for at least six months during peacetime or 90 days during wartime
- Your military spouse died while on active duty
If you qualify for a VA loan, you’ll still need to meet the lender’s specific requirements as far as income, credit history, and other factors. But for current or former military members, this is usually the easiest and most affordable path to homeownership.
USDA Rural Development Loans
With Americans leaving big cities in droves, there’s an increased interest in government home loans for rural locales. You might automatically think of a farm when you hear the acronym “USDA,” but this type of government financing isn’t just for farmers.
The US Department of Agriculture has its own homebuyers assistance program. It does target rural areas, although some parts of the suburbs may qualify as well. Like VA loans, it offers 100% financing options with zero down to qualified buyers.
How does it work? The USDA issues a guarantee that allows you to get a low-interest, zero down payment loan from a local lender.
For very low-income applicants, the USDA may issue direct loans with interest rates as low as 1%. There are also loan-and-grant packages that provide financing for rural homeowners to improve or repair their homes.
First-Time Home Buyer Government Programs by State
Government home loans aren’t limited to just federal efforts. Did you know that each state also has its own government financing available?
In Oregon, for example, there’s the Oregon Bond Residential Loan Program. The state sells bonds to finance its Rate Advantage and Cash Advantage Home Loans Program.
This program offers:
- Downpayment assistance grants up to $15,000
- Below-market interest rates and mortgages for first-time buyers
- A 3% closing cost assistance grant
Of course, each state has its own program, and the exact details vary by county and region. But it’s worth talking to your mortgage lender to find out if a state-funded option could be right for you.
Home Renovation Loan Programs
We briefly mentioned the 203(k) loan for buyers interested in a fixer-upper, but that’s not the only option in this category.
Let’s say you want to buy a home with energy-saving improvements or you want to upgrade the home to include more “green” features. You may be able to add the Energy Efficient Mortgage (EEM) option to your home loan. This gives your lender the option to extend your loan limits so you can make the desired upgrades.
Conventional programs backed by Freddie Mac and Fannie Mae also have a selection of purchase-and-remodel loans. The most common ones are CHOICERenovation and HomeStyle.
Again, your mortgage lender can provide more information if you’re interested in combining your home loan with renovation efforts.
Do You Qualify for These Government Home Loans?
For many families, government financing is a way to leave the rental world behind and join the ranks of homeowners. Even if you don’t have perfect credit or a huge savings account, one of these government home loans for first-time buyers could be the answer you’re looking for.
If you’re not sure which type of loan you might qualify for, help is available. Here at the Lindley Team, our mortgage experts can recommend the best option based on your circumstances.
Are you ready to learn more about first-time home buyer government programs? Call us at 503-517-8641 or use our online contact form to ask us a question. We’re standing by to help you turn your dream of owning a home into a reality!