Learn About the Top Government Programs to Help You Purchase or Repair Your Home

If you are in the market for a new home, you’ll probably need to obtain a loan. Fortunately, there are many different places you can go to look for financial assistance.

For example, the Department of Housing and Urban Development (HUD) offers various home loans you may qualify for. You can also check to see if you meet the eligibility criteria for loans from other branches of the government, like the Department of Veterans Affairs (VA).

Furthermore, in some circumstances, you may be qualified to receive financing from the government for home-related needs like repairs or maintenance.

As you compare different government home loans, it is important to keep in mind that these financing options work differently than the mortgages offered by private institutions. Depending on your situation and specific needs, you will have to decide whether a housing loan from the government is better for you than a loan from a private lending company.

Keep reading to learn about the different types of government financing assistance programs you can take advantage of, their eligibility requirements and what they offer recipients.

Find Out About Government Home Loans

Before you can purchase a home, you’ll probably need to take out a loan. As opposed to a conventional home loan, which is not government-backed, there are several government-insured loans you can take advantage of. Depending on your circumstances, you may be able to take out one of the following types of loans:

  • FHA – A loan from the Federal Housing Administration (FHA) is a government-backed loan that allows borrowers to put less down than they would need to with a conventional loan.
  • USDA – The United States Department of Agriculture (USDA) provides loans to borrowers who plan to purchase a home in a rural area. In order to be eligible for this loan type, the home must be in an area that the USDA designates as “rural”.
  • VA – Only veterans are eligible for VA loans. However, individuals who meet this requirement are eligible for various types of financing options.

Learn About FHA Loans

Most housing assistance programs and home loans offered by the government will be administered by the Federal Housing Administration, which is part of HUD. Through this program, the FHA works in unison with authorized lenders to provide borrowers with loans that come with beneficial terms for them.

Mortgages that are backed by the Federal Housing Administration are called FHA loans. Borrowers can use their FHA loans to purchase a single-family home of their own.

In order to be eligible to receive an FHA loan, applicants must:

  • Be able to pay the program’s down payment.
  • Meet the minimum credit requirements to receive one of these loans.
  • Be able to afford the monthly mortgage payments associated with their loan.

Consumers who want to receive an FHA loan must apply for home financing through an FHA-approved lender. They must also meet any additional application requirements put in place by the private mortgage company. These may be more extensive than the requirements listed above.

The major advantage of an FHA loan, as opposed to traditional financing, is that borrowers can typically expect to make a lower down payment and overall closing costs. For this reason, an FHA loan is usually the best choice for borrowers with a low credit score or those who do not have the savings they need to make a sizable down payment on a house.

About FHA Loan Lenders

Learn About Other HUD Housing Loan Opportunities

Applicants who meet specific eligibility criteria may qualify for additional types of loans from the FHA. One of these housing loans is known as the Section 184 Indian Home Loan Guarantee Program. Specifically, this program is available for Native Alaskans and American Indians who require housing assistance in their local communities.

Another example is the Good Neighbors Next Door program (GNND) for low-cost housing offered by the HUD. This program offers affordable home loans to teachers, emergency medical technicians (EMTs) and firefighters.

Borrowers who qualify for the GNND program may be eligible to receive a 50 percent discount on HUD-approved homes. However, families must live in that house for a minimum of 36 months in order to receive this benefit.

About Home Improvement Loans

Homeowners who are looking to make new improvements to their property can benefit from these home improvement loans:

  • HUD Title 1 Property Improvement Loans – This type of loan allows homeowners to make repairs improvements or add new constructions to their homes. Only certain renovations and constructions are eligible to receive these loans.
  • The 203(k) Rehabilitation Home Mortgage Program – This program allows homeowners to add a sum of $35,000 into their mortgage to cover the cost of repairs, improvements or other home-related issues that have been noted by a home inspector.

About Home Loans for Military Veterans

Retired military service members may be eligible for VA home loans. Some examples of these VA loans include:

  • Native American Direct Loans (NADLs) – Native American veterans or the spouses of Native American veterans can receive these loans. Furthermore, recipients can use these funds to purchase, construct or restore a home located on Federal Trust Land.
  • Cash-Out Refinance Loans – These loans allow homeowners to borrow capital against their home’s equity. Typically, these loans are for people who need to pay for things such as tuition, medical needs or debt consolidation.
  • Purchase Loans – These are loans that are guaranteed by the VA, which allows borrows to obtain a loan without having to make a down payment.
  • Interest Rate Reduction Refinance Loans (IRRRLs) – These loans help veterans obtain a cheaper monthly payment if they currently have a VA-backed mortgage.

About Home and Property Disaster Loans

Homeowners are encouraged to learn about home and property disaster loans, which are administered by the Small Business Administration (SBA). This loan program allows homeowners to borrow up to $200,000. However, individuals can only use these funds to pay for repairs after a natural disaster including fires, floods or hurricanes. Furthermore, families can only use these loans to repair a home to the condition it was in before the disaster.

Learn Easy Steps You Can Take to Help You Get a Home Loan

Purchasing a new home is a complex process because there are so many different factors that must be taken into consideration. At a base level, it’s difficult to find the right home that checks off all the boxes for you and your family. Beyond that, it’s difficult to find the right mortgage that will help you finance your purchase.

Fortunately, there are ways you can make this process easier. One way you can do this is by understanding the criteria lenders will look at to determine if you qualify for a loan. For instance, many mortgagors will look into a borrower’s total debt when considering whether or not to create a loan. You can also familiarize yourself with the factors that go into determining what the interest rate for your loan will be.

The more you understand about mortgage loans and the types of credentials you need to obtain one, the easier the process will go. The following sections explain different ways you can prepare for a mortgage so you can afford your dream home.

Tip 1: Pay Your Bills on Time

In order to receive a loan, it’s important that you have a strong history of paying back whatever money you borrow. Lenders and other institutions that generate loans will look into a wide variety of different factors to determine your eligibility as a borrower. Banks and other lending institutions will then look at this information to determine if they want to offer you a mortgage, as well as what your interest rate will be for that loan.

Whether or not you pay your bills on time will show up on your credit report. If you are able to use your credit report to show lenders that you have a stable history of paying your bills in a timely manner, then you will improve your chances of being approved for a loan. The stronger your credit report is, the better your chances are of receiving a loan with favorable terms for you.

Tip 2: Review Your Credit Report Each Year

Each year, you’re entitled to receive one free credit report. When you request your credit report, you will be able to see any loans that have been taken out in your name. You can also see if you have any outstanding bills that are affecting your credibility.

It’s important that you request a credit report before you apply for a loan. This is especially true if you think there are mistakes recorded in your report. Since most lenders will also check your credit report, it can be beneficial to fix any mistakes and improve your credit report before applying for a home loan. Mistakes can occur from:

  • Typos and clerical errors.
  • Mix-ups with consumers who have the same name.
  • Accounts not marked as closed.

Consumers can visit one of several different websites to access one or all three of their credit reports free of charge. It’s important that you repair these errors before you apply for a loan. Otherwise, you may be unfairly denied for a loan.

How to Check and Monitor Your Credit

If you’re not due for an annual credit report, you can still monitor your credit rating. One way to do this is to check your credit score with one of three major credit agencies.

Tip 3: Manage Your Debt-to-Income Ratio

When determining if you qualify for a loan, lenders will also take a look at your debt-to-income ratio. A debt-to-income ratio is a formula that is used to calculate consumers’ current debt compared to their income.

If you owe more than you earn, you’ll likely be denied a mortgage loan. Furthermore, keep in mind that certain lenders may have specific requirements about your debt-to-income ratio. For example, some banks may have a policy that they don’t lend money to individuals whose debt totals more than one-third of their annual income. Be sure to check these requirements before you apply for a loan.

In general, it’s also best practice to try and reduce your overall debt before you apply for a mortgage. This is true whether you have:

  • Credit card debt.
  • Medical bills.
  • Student loans.
  • Personal loans.

Tip 4: Maintain Stable Employment

When you apply for a loan, a lender will likely take a look at your employment history. If you have a history of being continuously employed, lenders will likely view you as a more responsible borrower. That’s because you’re more likely to have a steady stream of income so you can pay off your mortgage.

On the other hand, lenders might view your income flow as unreliable if:

  • You have recently experienced some gaps in your employment history. If you’re coming out of a period when you were unemployed for some time, this could affect your ability to get a loan. This is especially true if you apply for a loan when you’re unemployed.
  • You are prone to frequent job changes. While there’s nothing wrong with changing jobs, frequent career switches could affect your ability to receive a loan. One of the reasons this can affect your borrowing credentials is because job changes often come with different salaries, which can affect your ability to pay off a loan.
  • You are self-employed. Self-employed workers are sometimes viewed as risky borrowers. This is due to the fact that people who work for themselves often don’t have stable salaries or pay schedules.

In general, a lender will look into about two years of your employment history to determine whether or not you will be able to afford your mortgage. Keep this in mind before you apply for a loan.

Tip 5: Reconsider Opening or Closing Accounts

In order to ensure that your credit report is in the best shape possible, you should think twice about opening or closing multiple credit accounts. Each time you attempt to open a credit account, it will result on your credit report as a hard inquiry. If you apply for multiple accounts at one time, lenders might assume you’re getting ready to enter financial trouble and that you need the credit to help keep yourself afloat.

On the other hand, this doesn’t mean that you should start canceling all of your old credit cards so you have fewer credit lines. The length of your credit history is also a major factor that contributes to your creditworthiness. If you cancel your older accounts, this will shorten your credit history.

Tip 6: Limit Your Spending Before You Apply for a Loan

It is generally a good idea not to make any big purchases before applying for a loan. Buying a big-ticket item like a car or vacation may indicate to lenders that you are a risky spender. It may also increase your debt-to-income ratio if you make the purchase with your credit card.

Tip 7: Make Sure You Have the Necessary Documents

Before you visit a lending institution to apply for a loan, make sure you have the necessary documents with you. Generally, lenders will want to see the following documents and information alongside your applications:

  • Two years of income statements (W-2 forms)
  • Two years or tax returns
  • Bank statements from the past two months
  • Proof of identity such as a photo ID and Social Security Number (SSN)
  • Statements on investments you have made

The longer it takes for you to provide these documents, the longer it will take for the bank to issue a determination about your loan. Streamline the process by preparing these documents ahead of time.