A recent survey found that the American public is still somewhat confused about what is required to qualify for a home mortgage in today’s real estate market. We want to address two major misconceptions today and a few lending options.
1. Down Payment
The survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 40% of consumers think a 20% down payment is always required. In actuality, there are many loans written with a down payment of 3% or less. (Veterans Affairs or VA loan is 100% and the USDA loan can exceed 100%)
You might be able to enter the real estate market before you imagined with new programs that have come about allowing less drain on the bank account.
2. Credit or “FICO” Scores
The survey also revealed that 62% of respondents believe they need excellent credit to buy a home, with 43% thinking a “good credit score” is over 780. In actuality, the average FICO scores of approved conventional and FHA mortgages are much lower.
The average conventional loan closed in February had a credit score of 752, while FHA mortgages closed with a score of 686. The average across all loans closed in February was 720.
A Few Popular US Government Mortgage Programs
1. FHA Program
For those interested in applying for an FHA loan, applicants are now required to have a minimum FICO score of 580 to qualify for the low down payment advantage, which is currently at around 3.5 percent. If your credit score is below 580, however, you aren’t necessarily excluded from FHA loan eligibility.
2. USDA Program
A USDA home loan is a no down payment mortgage for eligible rural and suburban home buyers. USDA loans are issued through the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, by the United States Department of Agriculture. Most of the Verde Valley is eligible for a USDA Mortgage.
3. VA Loan Program
In 1944, the U.S. government created a military loan guaranty program to help returning service members purchase homes. The result, the VA Loan, is a mortgage loan issued by approved lenders such as Veterans United Home Loans and guaranteed by the federal government. The VA guarantees these loans so no mortgage insurance is required. The VA loans are 100%, no down loans. If the home buyer is a disabled Vet, most of the VA closing expenses are waived.