In today’s post, we wanted to take a look at several loan programs available for first time homebuyers. Although lending standards have loosened somewhat in the past few years, it can still be difficult for your average Ventura County resident to find affordable financing. Below we will describe some of the loan programs out there and give a few details on each one. Since all programs are subject to change and modification, make sure to check with your preferred lender on the specifics of any program you might be interested in. If you are not yet working with a lender, please feel free to contact us and we can refer you to some of the lenders that we prefer to do business with.
The Federal Housing Administration (FHA) is a part of the U.S. Department of Housing and Urban Development (HUD). Part of what the FHA does is insure mortgages so that lenders can offer potential borrowers more options than they normally would. FHA loans are set up so that the lender is protected from a loss in cases where the borrower defaults on the loan. FHA loans are probably one of the most popular loans for first time home buyers. Below are some of the specifics of an FHA loan.
Credit Score: With an FHA loan, it is possible to receive financing even if your credit score is less than ideal. In some cases, you can receive financing with a credit score as low as 500. In general, a lower credit score will mean higher down payment requirements and higher interest rates than those with a higher credit score. It is also possible to receive a loan if you have “nontraditional credit history or insufficient credit,” but you will need to talk to a lender to see if you qualify.
Down payments: Depending on your credit score, you can receive a loan with a down payment as low as 3.5%. The down payment can either be from your own cash or savings, a gift from a family member, or any government down payment assistance program.
Closing Costs: The FHA allows entities other than the buyer to pay closing costs, such as developers, lenders or the seller of the home. Borrowers should understand that if a lender is paying closing costs, it usually comes with a higher interest rate on the loan.
Private Mortgage Insurance: One of the downsides of a FHA loan is that you will have to pay Private Mortgage Insurance (PMI). This usually comes in two forms, the upfront premium and the annual premium. The upfront premium is paid when you get the loan and is 1.75% of the loan amount. The annual premium is paid monthly and depends on the loan amount, the loan-to-value (LTV), and the length of the loan.
USDA Rural Development Loan
The United States Department of Agriculture (USDA) Rural Development offers the Single Family Housing Guaranteed Loan Program. This program is designed to provide low and moderate income households the opportunity to buy their primary residence. The loan is only applicable to eligible rural areas. Although most of the larger cities in Ventura County are not within the eligible areas, you will see that cities such as Ojai, Santa Paula, and Fillmore are eligible. If you are looking to buy in one of these areas, you should definitely look into applying for this loan. The USDA also has a disclaimer stating that the eligibility map on their website is not the final determination of whether a potential borrower lives in an eligible area, so it may not hurt to contact them even if you do not think that you are in a rural area.
As of the writing of this post, some of the specifics of this program include:
- Minimum credit score with most lenders is 630
- No down payment required
- Lower interest rates than conventional loans in some cases
- No PMI, although there is a different fee that is less than PMI would be.
Fannie Mae Standard 97% LTV
Fannie Mae offers different loans that provide up to 97% LTV. The main purpose of the standard 97% LTV is to finance creditworthy borrowers who just don’t have the resources for a larger down payment. Specifics of this loan include:
- At least one borrower must be a first time home buyer
- No income limits
- Mortgage insurance required
- All loans are fixed rate
- Home must be a 1 unit property and be your primary residence
- Cannot be used on manufactured homes
The US Department of Veterans Affairs (VA) offers a VA purchase loan that service members and veterans can use to purchase a home. We have previously written about several loan programs that the VA offers, but below are some features of the VA purchase loan. Make sure to refer to the VA Home Loans page for the most up-to-date information.
- Available to both active duty and veterans
- 100% financing can be provided
- Interest rates are lower than conventional mortgages in most cases
- No PMI is required
- There is no minimum credit score requirement