It’s no secret that the millennial generation is behind the curve on homeownership compared to previous generations.
According to a comprehensive study by the Housing Finance Policy Center, Millennials have an 8% lower chance of becoming homeowners than previous generations did at the same age. The research cites issues like the increased cost of living, more student debt than ever before, and the nonstop increase of home prices as reasons for this trend.
However, there are specific home loan programs that can help address these issues. These are government-guaranteed home loans administered by:
- The Federal Housing Administration (FHA)
- The Department of Veterans Affairs (VA)
- The US Department of Agriculture (USDA)
These loans can address affordability issues in owning a home because the government guarantees them. This guarantee protects lenders if the borrower ends up defaulting on their loan, therefore more lenders are willing to be lenient with their terms.
Federal Housing Administration (FHA) Home Loans
These loans are perfect for applicants entering the real estate market for the first time due to their more forgiving eligibility standards compared to conventional home loans. FHA loans were created as part of the National Housing Act of 1934 to help people purchase their homes while dealing with a struggling economy during the Great Depression.
Applying for FHA Home Loans requires the applicant to have a steady employment history of at least two years. Additionally, applicants must make a low 3.5% down payment for the home loan, which is much lower than the average 20% required for conventional home loans.
Once the applicant meets all the FHA eligibility requirements, they will enjoy the benefits offered by the loan.
These Benefits Include:
- Lower monthly payments.
- Lower closing costs.
- Ability to take out more than the property is worth to cover repairs and upgrades.
- The loan is assumable, so if the buyer sells the property before it pays off, the new buyer can assume the FHA loan.
Department of Veterans Affairs (VA) Home Loans
Unlike FHA loans, VA Home loans are more exclusive to specific applicants; Veterans, Active Duty Service Members, and eligible spouses who meet the VA criteria. These types of loans offer some of the best benefits out of any home loan available, making the dream of homeownership more attainable for current and former military members.
Benefits From Taking Out This Type of Home Loan Include:
- A no down payment requirement
- Lower monthly costs
- No mortgage insurance premiums
- Lower interest rates
- No prepayment penalties
All that is needed to enjoy these benefits is that the applicant meets all property, income, credit score, and service eligibility requirements.
The applicant should serve at least 90 consecutive days in active duty while in wartime and 180 days during peacetime. Members of the National Guard and reserves must serve at least six years.
Once they meet these service requirements, the applicant will also have to ensure that they meet all other eligibility requirements outlined by the VA.
The U.S. Department of Agriculture (USDA) Home Loans
Home loans that the USDA administers are exclusive to lower-income families whose income is at or below the county’s low-income limit. The applicant must also purchase a modest single-family home in a rural development community, as approved by the USDA.
Eligibility for the home loans requires that the applicant:
- Must have a history of at least 12 months of making payment on time.
- Have a minimum credit score of at least 640. However, some lenders will accept even lower scores.
- The property applied for must be borrower’s primary residence.
The benefits of USDA home loans include a no down payment requirement, low interest rates, and low monthly mortgage payments.
There You Have It
The Millennial generation needs to enter the housing market and have some knowledge about government-backed home loans. As home prices continue to increase every year, knowing about government home loans could mean the difference between having a new generation of homeowners or a generation of renters.
Phil Georgiades is the CLS for FedHomeLoanCenters.org, a government-sponsored brokerage specializing in government-guaranteed home loans. He has been practicing real estate for 23 years. To learn more about our programs or apply for a home loan, click here.