Breaking the Chains of Renting: Programs That Help You Become a Homeowner

Are you tired of feeling stuck in your rental apartment or house, but all your money goes towards rent? The good news is, there are programs available that can help you break free from the “tenant” label, and become a proud homeowner. In this article, we’ll outline several options available to you.

Purchase Your Dream House With a USDA Loan

First introduced in 2014, USDA loans are designed to “improve the economy and quality of life in rural America.” They allow you to borrow the entire purchase price without putting any money down. The best part is, USDA loans are not just for areas filled with fields and green pastures. They are available in smaller towns with traditional neighborhoods throughout the United States.

To find out if these loans are available in your area, visit the USDA government website. You can find information regarding approved areas based on your city and state, as well as specific income eligibility for your area.

An FHA Loan Requires Little Down and Protects You From Buying a Money Pit

Although FHA loans require a down payment (usually 3.5 to 5 percent down), they do not have area restrictions like the USDA loan. As long as the house is in good condition, there is a good chance it will qualify for an FHA loan.

One advantage is the FHA inspection. It is more comprehensive than the normal house inspection and can point out defects that must be fixed prior to the loan closing. The thorough inspection can help you avoid buying a money pit.

The VA Loan is Not Just for the Active Military

VA loans require no money down, and you can negotiate closing costs by asking the seller to assist by paying these costs for you. This means you can become a homeowner with virtually no money.

To qualify, you must meet certain income and employment guidelines, and meet the requirements for military service or be the spouse of someone that qualifies. Talk to a VA-approved lender for more information.

Consider a Loan Assumption

Some loans, such as VA and FHA loans, are assumable. Although assuming a loan has not been popular for several years, they will gain in popularity in the future. Why? Because right now no one needs to assume a loan due to low-interest rates. But as interest rates rise in the future, assuming a loan at a 3.5% interest rate when current rates are 6% will be very appealing.

The downside is that it may require a larger amount to be financed if the seller has a significant amount of equity in the home. Still, they are worth keeping on your radar.

Purchasing the House You Rent (Lease to Own or Land Contract)

If you are renting and want to buy the house, talk to the owner about a Lease to Own or Land Contract. This type of purchase is perfect for anyone that wants to purchase a house but doesn’t have the downpayment, or is in the process of rebuilding credit (such as after a divorce or bankruptcy).

Typically, a Lease to Own requires a small down payment and an agreement on how much of the rent payment will go towards purchasing the home. You and your landlord will also agree on how long the rent-to-own period will last. After that time expires, you apply for a mortgage to complete the purchase. This allows you to apply for a mortgage when you have more chance of approval, after rebuilding your credit.

A Navy Federal Loan is Not a VA Loan

The Navy Federal Credit Union is similar to the VA Loan, but the funding fee is less than VA funding fees. Typically, all military funding fees can be financed, making this a 100% financed loan that requires no money down.

The Navy loan is only available to members of the Navy Federal Credit Union. Admittance to this credit union is more strict than a normal credit union, and the most common members are military personnel. However, this membership is extended to some family members of military personnel, some civilian employees of the military, and employees in the U.S. Department of Defense.

Mortgage Insurance Makes Up for Missing Downpayment Funds

If you are willing to pay Private Mortgage Insurance (PMI), many mortgage brokers work with lenders that will allow you to put down 10% instead of the traditional 20%. These loans have advantages and disadvantages.

An advantage is less money down and the ability to drop the PMI once you own 20% of your home. The disadvantage is the additional payment that is tacked on to your normal mortgage payment, which can be as much as 10% of the mortgage payment.

Private Mortgages

If you know someone that is willing to back you on your home purchase, they can purchase the home on your behalf and then become your lender. This scenario can be a win-win. You get that home you had your eye on, and they get paid interest on the amount they let you borrow. You can also avoid PMI when going this route.

Many first-time homebuyers find this type of assistance with parents and grandparents who have funds to pay cash for the home.

If It’s Your First Home, You Are in Luck With First-Time Home Buyer Programs

There are many first-time homebuyer programs available. A simple internet search will return a plethora of programs. There are local programs, state programs, federal programs, and programs offered by individual banks and mortgage companies.

These programs vary in the amount of assistance they offer. For more information on first-time home buyer programs in your area, contact a local mortgage broker.

Credit Union Financing Is Available to Most

If your local bank says no to a mortgage, many credit unions have less stringent guidelines for qualification on a home loan. Credit unions often offer home loans with as little as five to ten percent down.

Before giving up, check with your local credit unions for program specifics and eligibility requirements for their home loans. Many credit unions only require a deposit account for membership in their credit union.

Conclusion

If you feel stuck in your rental apartment or house because all your money is going towards rent, don’t give up. There are several programs available that can help you become a homeowner. From USDA loans to VA loans, FHA loans, Lease to Own or Land Contract, there’s a solution that can work for you. The key is to do your research, ask the right questions, and work with professionals who can help guide you towards owning your dream home.