Did you know low- and middle-income earning families can be eligible for low FHA loan rates when it comes to buying a home?
If you dream about owning your own place, but feel you are not earning enough, the Federal Housing Administration (FHA) could help. The FHA specializes in offering low-interest mortgage rates for new homebuyers. There local FHA lenders in most areas that are readily available to walk through the application process and requirements for this type of loan. For senior citizens, the U.S. Department of Veterans Affairs (VA) offers a low down payment VA loan, as well. No matter what kind home you are looking to buy, there are several options for you without breaking the bank. Most of these options are funded through the federal government, but are distributed from the lender level. The idea is that these programs allow a most effective home buying process to make them more affordable to everyone. Throughout this guide, you will learn about the different types of home loans available, even if you have bad credit.
FHA Loan Rates
There is a certain level of mortgage insurance on loans provided by FHA lenders through the Federal Housing Administration. Currently, FHA backed loans are the largest insurers in the world, and have insured millions of properties over time. Typically, an FHA loan is great for any first-time homebuyers who are looking to purchase, but do not have large enough down payment sums.
If you are seeking federal assistance in purchasing a home, you may qualify, even with low credit scores. In fact, if you have faced bankruptcy or foreclosures in the past, you may still qualify. Consider the below:
- A minimum FICO score of 580 qualifies you for a 3.5 percent down payment rate
- For FICO score below 580, you can qualify for a 10 percent down payment rate
While it may seem easy to qualify for an FHA loan rate, there are certain other credit requirements the FHA will look at. These include the following:
- The borrower’s payment history
- Past bankruptcies and foreclosures
- Extenuating circumstances surrounding the above when determining an FHA loan rate
While it is important to keep your credit in good standing, the FHA can still provide relief when affording a new home.
While you are going through the application process for an FHA loan, you are required to submit several documents. This documentation is crucial in determining eligibility. This is a short list of items you should consider taking when you complete the application:
- At least two years of income tax returns
- At least three years of income tax returns, if self-employed
- W-2s, 1099s or other income statements
- Most recent bank, retirement, stock or mutual fund statements
- Recent credit statement for FHA loan rates
- Employer and/or landlord contact information
- Personal identification including driver’s license and Social Security card
Every individual situation is different when applying for this type of loan. Therefore, additional documents maybe requested by the bank.
A VA loan is supported by the U.S. Department of Veterans Affairs. The VA supports all service members, veterans and even surviving spouses when becoming new homeowners. The VA does not provide the loan, rather, the body is the “insurance” behind the promise to pay. For example, a USAA VA loan from this lender offers the mortgage service.
You may be asking, “What is a VA loan, and what is required?” The VA is your mortgage insurance or “backer” on a portion of the loan amount. This allows the homeowner to afford a lower interest rate and no down payment benefits. Traditionally, VA home loan rates are low, compared to other lenders, and usually fluctuate between 4 and 5 percent, annually.
One benefit of these loans is the variety in which they can be used. This includes the below:
- Building a new home
- Repairing an existing home
- Assistance to retain homes close to foreclosure or bankruptcy
- The adaptation of current residence, especially for those with a disability
But, be aware that a VA loan is not accessible to everyone. VA loan requirements are as follows:
- You are a current military service member or active duty with at least 90 days of continuous service
- You are an active duty veteran who served after August 1990 with 24 months of continuous service
- You are the unmarried spouse of a service member who died during service
- You are a spouse of a service member who is missing in action or that was a prisoner of war
- You are the surviving spouse and the veteran’s death was not related to military service
Once you have established eligibility for a VA loan, you will need to acquire a Certificate of Eligibility (COE). This certificate verifies to your lender that the Department of Veteran Affairs is backing your mortgage payment. Depending on the of type service individual you are determines what documents will need submitted. The COE can be found and applied for online through the VA website or directly through your lender.
Home Renovation Loans
The FHA also offers home renovation loans. This makes it easier for low- or middle-income consumers to afford a much-needed upgrade toward home improvement. The FHA is simply the insurance behind the monthly premium to the lender. Given the various levels of programs in different areas, eligibility requirements differ. In most cases, it will depend on the applicants’ income level, age of the homeowner, the type of property they are looking to improve and where the property is located.
But, the FHA is not the only organization that provides home renovation loans. Here is a list of the best home improvement loans available to consumers:
- HUD Title 1 Property Improvement Loan: Loan amounts and payment terms are limited based on the type of property you wish to improve
- 203(k) Rehabilitation Mortgage Insurance Program: This is offered through the HUD, and covers most costs affiliated with rehabilitation of homes at least one year old.
If you are looking for home improvement loans with bad credit, you should consider researching FHA loans. Depending on your credit score, you could qualify. Also, if you have equity in your home, you could potentially utilize that equity as collateral, which ultimately reduces lender risk.