What are my financing options? An explanation of different types of loan programs
If you don't have perfect credit or do not have the 20% for a traditional down payment,
you may still be able to get a mortgage. Consumers with slightly blemished credit are able
to qualify for mortgages with fairly competitive rates.
Fannie Mae, for example, offers an expanded approval program for those who may not
qualify for fair-market value rates through traditional lenders.
FHA Loans- If you credit isn't good enough for a Fannie Mae loan, you may still qualify
for a loan through the Federal Housing Authority (FHA). The loans are government backed and have
lower credit criteria. You can put as little as 3% down and finance your closing costs in your mortgage.
There are no income limits for FHA loans. However, these loans are primarily for first-time homebuyers
and low to moderate income families. There are limits to how much you can borrow.
Private lenderslenders have come up with a lot of programs designated for first-time home buyers.
Washington Mutual, for example, offers a mortgage with a 10% down payment with the remaining 10% of the down
payment built into the interest rate, making it tax deductible. This also eliminates the need for private
mortgage insurance.
Piggybacking a loanis increasingly common. This type of mortgage is often referred to as an
80-10-10. You simply place 10% of the home's value down. Then you take out your primary mortgage,
usually as a 30-year fixed rate, for 80% of the home's value. Then you take out the remaining 10%
as a 15-year fixed rate second mortgage, at a less favorable rate. When you combine the two loan
payments you reach your total mortgage payment. The process is a little more complicated and expensive
than a traditional mortgage and has higher closing costs. But it may be cheaper than paying for
private mortgage insurance.
Ask your financial advisor or lender about the different types of loans. They should be able
to find a program that fits your needs or help you work out a plan to increase your credit score
for a future mortgage.
Below are some other example lending programs that help low income and moderate income families buy,
build, or remodel homes.
- 502 Loans - These are subsidized, low interest loans which are provided to families with
low to moderate incomes. Depending on income, house payments can be reduced through an adjustable interest rate.
- Single Family Home Ownership - Loans from Rural Housing Service for cities with population less than
20,000 provide direct loans for up to 100% of costs over 33 years.
- Guaranteed 502 Loans - These loans are mostly for moderate income families and require no down payment.
Loans are provided by approved commercial lenders, with loan note guarantee provided by Rural Development.
- Home Improvement and Repair - 504 Loans are made to qualifying low income families to remove health
and safety hazards. Families can borrow up to $20,000 at 1% interest.
- Housing Preservation Grants - Qualifying nonprofit organizations and local government entities can
receive these grants to remodel and repair homes in eligible low income areas.
- Rural Rental Housing Loans - Provides financing for the construction of affordable rental units in rural areas.
- Rental Assistance Programs - Provides subsidized rent to low income individuals, families, and the elderly in rural rental complexes.
- Communities Facilities - The Rural Housing Service is also responsible for administering USDA's Rural
Development Community Facility loan program. These loans provide communities a financial resource which can be
utilized to construct or improve community facilities which provide essential services. Loans most often involve
schools, hospitals, retirement and civic centers, along with local government buildings such as police and fire halls.
- Farm Labor Housing - RHS has special loan and grant programs for rural farm worker housing.
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