For Home Loans - Part 2
VA Home LoansIf you're a veteran or are currently serving in the Armed Forces, a VA loan presents another, potentially more attractive, alternative.
Designed for members of the military, veterans, reservists and National Guard members, VA loans allow people to purchase a home with little or no out of pocket expense. Even spouses of military personnel who died while on active duty or due to a service-connected disability may be eligible.
Guaranteed by the Department of Veterans Affairs, VA loans do not require the borrower to take out mortgage insurance. They are also one of the few options that do not require borrowers to make a down payment.
While VA loans aren't entirely fee-free, the cost of getting one is lower than that of any other type of financing. For example, a borrower securing a VA loan for the first time, with zero down payment, is likely to pay a fee of around 2.15 percent of the total amount borrowed. This fee reduces to around just 1.25 percent if the borrower can make a down payment of 10 percent or more. Individuals receiving disability compensation may see their fees waived altogether.
Even though the guidelines for VA loans are more flexible than they are for conventional mortgages, borrowers must still demonstrate that they have sufficient income to cover the payments and they don't have excessive debt. Most lenders will have their own requirements, which will differ, but Veterans Affairs does not require a minimum credit score.
USDA Home LoansIf you're not a soldier or a veteran, but would still like to go down the 100 percent financing route, a USDA loan could be right for you. USDA loans are issued through the USDA Rural Development Guaranteed Housing Loan Program by the U.S. Department of Agriculture and are among the less known subsidized loan programs. Similar to FHA- and VA-backed mortgages, USDA loans are issued by a participating lender, but guaranteed by the U.S. Department of Agriculture.
USDA loans differ in that they don't apply to metropolitan areas. Rural areas and suburbs are nearly always eligible, which makes this a god option for people that want to take advantage of the lower home prices in rural areas or on the outskirts of big cities. A USDA loan allows a borrower to finance 100 percent of a home's purchase price and get access to better-than-average interest rates at the same time. Their fixed rate nature also makes USDA loans a win-win for many buyers.
Predatory Lending PracticesAs is the case when you're looking to secure any mortgage, you need to be aware of some of the common predatory lending practices that companies sometimes employ.
Be alert for these five predatory lending practices:
Inflated fees – Look into standard fees in your area so you can spot inflated lender fees a mile away.
Abnormal early payment penalties – Early payment penalties are common, but some lenders charge over the odds.
Exploding adjustable interest rates – Some adjustable interest rate mortgages do not include the ability for rates to go lower, only higher. Beware of these.
Repeated refinancing – Repeated refinancing can see you sign up for a larger mortgage with a higher interest rate and additional fees.
Asset-based lending – This is where buyers are encouraged to borrow more money than they should. Loans are often based on home equity and not income.
A poor credit score shouldn't stop you from fulfilling your dream of owning a home. While the best solution would be to get your finances in order and apply for a conventional mortgage when you are in a position to do so, you do have options right now, even with a checkered credit history.