Buying a first home can be a serious and daunting task – particularly if potential owners are concerned they don't have enough money to purchase the home of their dreams – or even a second, third or fourth choice. A nationwide survey of 24,000 current renters by Apartment List reported that 80 percent of millennials believe they just can't afford a home. But before you put your homebuying dreams back on the shelf, you should look into these five programs that can put you into a new home sooner than you think.
1.Federal Housing Administration (FHA) Loans
The Federal Housing Administration is an agency in the U.S. Department of Housing and Urban Development that insures the FHA housing loans. Loans backed by FHA offer lenders protection from loss if the borrower should default on the mortgage. FHA loans usually have better rates and require smaller down payments than those obtained from other sources. But most importantly, potential FHA borrowers don't need stellar credit to take advantage of the loans. A borrower with a credit score of at least 580 will be able to get a highly competitive loan, according to Bankrate.com. If the credit score is lower than 580, it might still be possible to qualify but the down payment requirement would be at least 10 percent of the total purchase amount.
2. Fannie Mae and Freddie Mac
Fannie and Freddie are also government-sponsored enterprises and get quite a bit of attention in the media. Both companies are also regulated by HUD and the Federal Housing Finance Agency.Fannie Mae was created as part of the New Deal in 1938, in response to the Great Depression and in an attempt to stimulate the housing market. Freddie Mac was established by Congress in 1970 in order to provide competition for Fannie Mae and to further boost the availability of funds for mortgage lending. Both work with financial to offer mortgages for low- and moderate-income families. Mortgages backed by Fannie and Freddie permit lenders to offer competitive interest rates and down payments as little as 3 percent of the purchase price to low-income borrowers. Fannie Mae also offers a homeownership education course for first time buyers through it's HomePath Ready Buyer program.
3. USDA Loan
Not as well-known as Fannie and Freddie, the USDA offers a homebuyer assistance program for low- and very low-income applicants to finance safe and sanitary housing in eligible rural areas by providing payment assistance to increase the borrower's ability to repay the loan. The assistance comes in the form of a subsidy that reduces the mortgage payment for a short time. The amount is determined by adjusted family income. Applicants with a credit score of 640 or higher may get faster processing than those whose score is lower. Scores less than 640 might still qualify but more paperwork will be required.
4. VA Loan
Active-duty members of the military, veterans and surviving spouses may take advantage of the VA Loan program run by the U.S. Department of Veterans Affairs. Because the VA guarantees part of the loan, lenders can offer special features such as competitive interest rates requiring no down payment. Recipients of VA loans are not required to pay private mortgage insurance and no minimum credit score is needed for eligibility. In addition, borrowers having trouble making payments can ask the VA to negotiate with lenders on your behalf.
5. Good Neighbor Next Door
This HUD program is offered to law enforcement officers, firefighters, emergency medical technicians and pre-K through 12th-grade teachers. Borrowers who apply for a loan through the Good Neighbor Next Door program can receive a discount of up to 50 percent on the list price of homes in certain "revitalization areas." Potential borrowers can look for properties available by state and must commit to living in the home for at least 36 months. A list of eligible single family home in revitalization areas are listed for sale exclusively through the program. HUD offers a substantial incentive in the form of a discount of 50 percent from the list price of the home. In return you must commit to live in the property for 36 months as your sole residence.