Financing your Home Through the USDA and VA Programs

The process of becoming a homeowner is an exciting and often daunting one. The current economic climate has heightened the anticipation since, while it’s a wonderful time to buy a home. In fact, the government recently provided a tax credit to buyers (which is still available if you are a deployed service member). While the market is favorable and sellers are extremely motivated, many banks are tightening their lending requirements and loans can often seem hard to come by. Although USDA and VA loans may not be the first loans most potential home buyers normally consider when looking at home financing options, each can be a wonderful choice for a wide variety of lifestyles, budgets, and properties.

VA loans, which are backed by the US Department of Veterans Affairs, are primarily aimed at active duty service members and veterans. The VA doesn’t provide consumers with actual loans but instead provides a guarantee to the bank issuing the loan to lower the risk, which in turn reduces the stringent credit requirements and allows the bank to accept a smaller down payment from the buyer. In fact, VA loans permit as little as 0% down (traditional loans require around 20%), and allow closing costs to be financed with the principle of the loan. Rates are highly competitive, with interest rates very similar to (or even better than) traditional programs.

The USDA loan program is open to low-income homebuyers (those who make less than 80% of the median income for the area) regardless of whether they are first-time homebuyers or not. The program requires no down payment and in fact, homes needing improvements can be financed at 102% to allow the homeowners to have the cash to complete the necessary projects (which can be done after closing). While most loan programs insist upon mortgage insurance if more than 80% of the home’s value is mortgaged, the USDA program does not have this requirement, saving borrowers over one hundred dollars monthly.

Each program has a maximum loan limit, which is based partially on the cost of living in individual areas in the country. The policy of adjusting the loan limit to the cost of living ensures that every qualified borrower, regardless of the economy in their area, will be able to find a suitable house within the limits of each loan program. For more information on USDA and VA loans, visit your lender or go to www.usda.gov and www.va.gov