Government programs to help you buy your home

Key takeaways:

• Government programs could help you find a loan that enables you to purchase your home.
• In government-backed loans, a bank is still used as the lender, but the government program typically guarantees that loan.
• Combined with low interest rates, government programs provide options to help assist borrowers who may need more flexibility such as possible lower down payment requirements. They also may have lower rates for monthly payments.

If buying a home seems difficult, you should consider the options that help make it possible. As a homebuyer, you should consider looking for the programs that are in place to assist you if you need more flexibility than a conventional loan, which is not offered or secured by a government entity but rather available through or guaranteed by a private lender. By utilizing a type of government program-backed-loan, your bank can still act as the lender, but the government backs the loan in order to help you join the housing market.

If you’ve served in the military, live in a rural area or have low-to-moderate income, then you could have the chance of qualifying for a special government program loan.

If you’re a United States veteran or spouse, you could qualify for a Veterans Affairs Loan. Several banks are qualified lenders of VA loans, which are guaranteed by the U.S. Department of Veterans Affairs. This is a great program with excellent benefits for those who have served in the military. There is an upfront fee that is dependent on prior use of the program, length of service and disability.

Benefits of VA loans include:

• No down payment requirements
• Lower interest rates
• More accommodative credit requirements

With this loan, eligibility is affected by the length of service or commitment, duty status and character of service. A Certificate of Eligibility (COE) is required.    

If you live in a rural area that may be an eligible United States Department of Agriculture (USDA) lending area and have a low-to-moderate income, you could qualify for a USDA Rural Development loan, which is backed by the USDA. This tailored solution is designed to assist low-to-moderate income rural and suburban residents in purchasing a home.

This program also gets you into your home with a zero-down-payment mortgage, but it has an upfront fee and annual fee for the life of loan.

Benefits of USDA loans include:

• No down payment requirements
• Lower interest rates
• More accommodative credit requirements

To qualify for this loan, an applicant’s income gets determined by the number of members in the household and it cannot exceed the median income for the geographical area by more than 115 percent.

If you have low-to-moderate income, you may qualify for a Federal Housing Administration (FHA) loan, which is guaranteed by the FHA. With this loan, you can purchase a home with a small down payment even if your credit score is less than perfect. You may also be able to roll closing costs into your loan.

Benefits of FHA loans include:

• Low down payment
• Low closing costs
• More flexible credit qualifications

The downside of an FHA loan is that you must pay Mortgage Insurance Premiums (MIP). While conventional loans only need Private Mortgage Insurance (PMI), FHA loans require an upfront premium along with an annual premium for the life of the loan.

State programs also provide assistance to help alleviate the cost of buying a home. These are typically available to those with incomes that fall below the area’s median income.

The MidWestOne team is experienced in government-backed loans and can help empower your home ownership. All loans are subject to credit approval. To speak with a mortgage banker to learn more about the eligibility requirements for loan programs, visit your local MidWestOne branch.

MidWestOne Bank does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

MidWestOne is pledged to the letter and the spirit of the United States policy for the achievement of equal housing opportunity throughout the nation. We encourage and support an affirmative advertising and marketing program in which there are no barriers to obtaining housing because of race, color, religion, sex, handicap, familial status or national origin.