Don’t Get Down Over Your Down Payment: A Quick Guide to Government Backed Loans

Let’s face it, Southern Illinois isn’t like any other region in the Midwest. A mix of Midwestern and Southern culture paired with the natural beauty of Little Egypt make this one of the most welcoming and unique places to live. But our language (ain’t that right ya’ll?) and food (think Fat Patties and Pop’s) aren’t the only thing that sets us apart. We tend to finance our homes differently. Our area traditionally relies on government backed  FHA, VA, and USDA loans more heavily that areas like the Metro East or Springfield. These loans are backed by the federal government and are therefore less risky for banks than traditional mortgages, this lets you enjoy lower down payments and lower interest. I’d like to show you a few options for home financing that are commonly used around here, and explain how and why you might want to utilize each one. This article is no substitute for professional advice from your lender and Realtor, it is a quick guide to get you headed in the right direction. Next time we will cover more traditional financing.


FHA Loans

Down Payment: Minimum of 3.5%

Credit Score Range: 580 or higher in most cases. Lower scores considered with a 10% down payment or more.

Special Qualifications: Employment history for 2 years, the home must meet certain inspection requirements, the home must be a primary residence

An FHA Loan is an attractive option for people with less than perfect credit and first time home buyers. It has a relatively low down payment with the right credit score, but it comes with inspection requirements. The home must meet these standards or the seller must agree to make the repairs to bring the home of these standards. An FHA loan also requires mortgage insurance to protect the bank from potential loss on their investment. This type is very common in our area, possibly the most common.


USDA Rural Housing Development Loans

Down Payment: 0% and closing costs may be financed

Credit Score Range: 620 preferred, 580 and below accepted with more stringent underwriting requirements.

Special Qualifications: Live in an approved area, dependable income for a minimum of two years, a good credit history with no accounts in collections for one year.

This loan is not restricted to farmers! Anyone can be eligible. For those with better credit a USDA loan can be a great option. It allows a buyer to purchase a home with 0% down. The buyer can also finance closing costs so the buyer will end up paying very little out of pocket to get started. This type of loan is restricted to certain rural areas but luckily almost all of our region is covered. This loan can also be used for improvements on a purchased property. USDA is among the top two types of loans used in our area.


VA Home Loans

Down Payment: 0% if home does not exceed appraised value

Credit Score Range: Usually 620 or above

Special Qualifications: Service in the United States Armed Forces for a specified period of time or be the spouse of a qualifying deceased Veteran

A VA Loan is a great option for veterans. This allows you to purchase a home for almost no money down, may cover closing costs, and limits closing costs. These costs can even be payed by the seller leaving you with less out of pocket costs to close the transaction. Usually they can only be used once by a qualifying veteran. This loan will only cover the appraised value of the home. If a home is appraised at $100,000 and listed at $110,000 a veteran can still use this loan if they make a down payment for the remaining $10,000.

Regionally we tend to prefer these government backed loans to other ways of financing a home. They all have some great attributes but the requirements can be fairly stringent. This general guide should give you a little background into government backed home loans. A Realtor can help direct you towards a lender who can make these work for you. The next entry I write will cover more traditional forms of home financing and how and when you can make these work for you. Don’t be discouraged from home ownership by a down payment, there are plenty of ways to minimize or even eliminate this cost!


Author: joekingc21

Joe King is a real estate broker and a bow tie enthusiast. A Benton native with a history in sales and public speaking, he brings new perspectives and a high-energy style to all of the work he does. Using good old fashion salesmanship and the latest in social media marketing he’s in it to get results. No joke, Joe King wants to be your go-to guy in real estate. Ask me anything about real estate, I'm here to help!

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