A lot people are interested in getting the best possible deal on the purchase of a new property which leads them to consider; “What is a HUD home?”
It’s imperative to know all of the ins and outs when it comes to what these properties are and how to go about buying a HUD home. Homeowners can certainly save a significant amount of money on these properties, but you should be aware of where they come from first.
A HUD home is a property that is currently owned by the Department of Housing and Urban Development. The federal government became the owner of these properties at some point during the foreclosure process.
Most of the homes are the direct result of a foreclosure that resulted from an FHA (Federal Housing Administration) mortgage loan.
When a homeowner purchases a property with an FHA loan, the federal government agrees to insure the loan for a private lender.
Eventually, the homeowner’s payments may stop and the lender decides to move the home into foreclosure to help recoup some of their lost money from this property.
They may decide to hand the title back over to the government to sell for them and help to cancel out some of the debt they incurred when the mortgagee failed to make payments.
At this point, they are considered HUD homes and are sold through the HUD Homestore, a government website that features available properties.
The general public is able to look at this site, as well as real estate professionals who may be approved to sell this type of property.
What are the Benefits of Buying a HUD Home?
There has to be a reason why so many homeowners are eager to purchase these properties. If you’ve already found yourself asking what is a HUD home?, you may already know why they are so popular. The main reason most people pursue this type of mortgage is that they want to find a spectacular deal during their next home purchase.
This may be the only way that they can afford to make the dream of homeownership into a reality or it could be a great way to simply lower their monthly expenditures to focus on other things.
A HUD home presents a realistic opportunity to own your own home for a fraction of the cost of the original list price.
Because these houses have been previously foreclosed on, the bank is eager for them to sell quickly. They tend to price them very low and offer generous discounts through programs like the Good Neighbor Next Door. If homes don’t move in a timely manner, they continue to reduce the sale price.
What Are Some HUD Home Disadvantages?
Just as there are many benefits to purchasing this type of property, there is one major disadvantage that all prospective buyers should be aware of. There may be a need for extensive (and expensive) repair work on a home that has been through the foreclosure process.
A homeowner that didn’t have the money to make their monthly mortgage payment may not have had the money to care for or maintain their home. It may be busted up inside or in need of great work done to the roof, electrical systems, or plumbing.
The odds are that there are at least a few items that need to be taken care before most people would consider these homes “move-in ready.”
Unfortunately, the Department of Housing and Urban Development doesn’t take any responsibility for fixing up these properties prior to listing them for sale.
Each home is sold as-is, which is why all buyers are encouraged to pay for a thorough home inspection prior to making an offer on a property.
This gives you an opportunity to survey the extent of the damage and determine the potential repair costs. You should consider this a crucial step if you want to purchase one of these HUD homes.
How Can I Buy a HUD Home?
Are you still interested in the potential long-term benefits of buying a HUD home? The HUD homes definition sometimes makes potential buyers a little wary of the process and the real advantages of this type of purchase.
However, it doesn’t negate the fact that many of these properties are an excellent deal that can make homeownership a reality.
The primary goal is for these homes to be sold to owner-occupants instead of mortgage brokers or investors who could flip them for a profit.
This is why most homes are listed exclusively for sale to owner-occupants (those who will both own and live in the property as a primary residence) for a period of time before being made available to the general public. You can search for a property on the HUDhomestore.com website by using their search feature to look in your desired area. You can narrow it down to state, city, county, or zip code for a very narrow scope on where you would like to reside.
During the time the home is listed for sale, you may contact an approved real estate professional to schedule a walkthrough. It’s at this point that most professionals would recommend that you have a thorough home inspection done prior to making an offer on the property.
Offers can be made directly for the list price, higher than the asking price, or lower depending on the market in your area.
You are allowed to negotiate the price somewhat but be aware that you may be competing with other bidders. An offer that is markedly lower than the others isn’t destined to win the auction.
All bids must be submitted by one specific date listed on the Homestore website. These homes are auctioned to the highest bidder, so all offers must be submitted for review by this date.
They will review all of the contenders who are interested in the property and determine whether to make the sale or not.
If none of the offers meets their minimum standard, they may extend the deadline or lower the price of the home.
You may make an offer on the property through a real estate professional. You must be working with an agent in order to bid on these properties. HUD will help to cover the cost of the real estate professional you use during the closing costs.
Anyone is able to buy a HUD home as long as they have either the cash to purchase the home or can obtain financing through a private lender. HUD does not issue financing for any of these properties.
What happens if your offer is selected?
When your offer is selected, you are usually asked to put down an earnest money deposit. These funds go toward the down payment on the home and are non-refundable.
You should be prepared to make some type of good-faith contribution to the purchase price of the home at the time of making an offer.
If your offer is selected for the home and you are approved it purchase it, most closings happen within thirty days.
HUD may decide to extend the deadline for a thirty-day closing if your lender needs more time to process your paperwork or loan application. However, these extensions must be granted in writing in order to be valid.
It’s recommended that your home inspection take place prior to this stage because you cannot back out of the contract at this point. Any issues that arise with the property in this interim waiting period will not affect the sale of the home.
If you choose to back out of the contract at this point, you will lose all of the earnest money and any deposit you put down on the property.
Are There Financing Options?
It’s a common misconception that the Department of Housing and Urban Development provides financing for the properties they have listed for sale in the HUD Homestore.
This agency does not offer any type of financing to help homeowners secure the money to purchase one of these HUD homes. All financing will have to go through a private lender.
Some of the properties listed for sale on the HUD Homestore are eligible for an FHA loan from a lender that participates in this government program. The Federal Housing Administration is willing to insure a part of the loan to make prospective buyers less risky to the lender.
In exchange, homeowners qualify for several perks that can save them lots of money on the upfront costs associated with a home purchase.
The largest savings associated with an FHA mortgage is the low down payment. Borrowers with decent credit (580 or higher) qualify for a down payment of just 3.5 percent. Compared to a conventional mortgage that typically requires a twenty percent down payment, this can save you thousands of dollars and put homeownership on your radar in the more immediate future.
How-to Qualify for a HUD Home
Do you have poor credit? Don’t worry because you may still qualify for this loan program with one additional compensating factor. Credit scores lower than a 580 can qualify for an FHA loan if they are willing to and able to put down a ten percent down payment instead.
The other major deciding factor for approval on an FHA loan is your debt-to-income ratio. Most lenders prefer to see that your total debts (including the estimated mortgage, interest, taxes, and insurance on this new property) will equal 43 percent or less of your total income.
Be prepared to demonstrate that you have a solid work history and a decent income in order to qualify for this loan. As with most loans, you will need to bring proof of your income such as W2 statements and previous tax returns.
A property that is eligible for an FHA loan can move through the closing process much faster than other homes. They have likely already had their FHA appraisal that determines the final eligibility of the property and can finalize the funding.
If you are anxious to move into a new home, opting for one of these FHA-approved properties could be one way to start things moving a little faster.
Why Aren’t All HUD Homes Eligible for the FHA Loan?
The truth is that not all HUD homes are going to be eligible for this type of financing.
This may not make sense because the majority of the properties are foreclosed FHA loans when they come under the ownership of HUD. However, you are about to understand more fully why an FHA loan may not be an option.
Properties that qualify for the FHA loan program must meet certain minimum property standards. These are items that are directly related to the safety and sanitation of the home, and they are determined by an appraiser.
The appraiser is going to be looking for major issues in the home such as electrical problems, issues with the plumbing, a bad roof, and other important areas.
If the property can’t meet these standards, a lender isn’t going to issue the financing for the property.
Some homeowners find a property on HUDHomestore that is not eligible for the FHA loan, but they neglect to ask themselves why this might be the case. Chances are that it directly relates to the need for some major repairs deep within the home. You have to ask yourself if you are willing to take the risk on this type of property, knowing that an obvious problem has likely already been spotted.
What If the Home Needs A Lot of Repairs?
Some homes come with a much longer list of necessary repairs than others. If you stumble upon a home that is a real fixer-upper and you’re willing to do the work, you may qualify for the FHA 203K loan.
Ordinarily, homes that need to be remodeled will first need to be purchased and then the owner will need to obtain a construction loan. You will pay interest on the money drawn from the construction loan until the renovation is complete.
At this point, both the construction loan and the first mortgage will be bundled into one “new” mortgage with a single monthly payment and interest rate.
This can be a real headache for homeowners, and it comes with a substantial cost. After all, you’re now paying for multiple closings. To help make the process simpler, the FHA 203K loan may be offered.
This financing method packages the money needed for renovation into your initial mortgage and does not require an additional closing once the repairs are complete.
This makes obtaining the money you need to complete your checklist of needed repairs much simpler than it was in the past. You don’t have to use an FHA loan or an FHA 203K loan in order to buy a HUD home. They are convenient and advantageous programs, but you can use other mortgages and financing options as well.
Frequently Asked Questions
How much money do you need to put down on a HUD home?
Most down payments on a HUD home are just five percent, but you may qualify for a lower rate if you use an FHA loan to finance the property. Not all HUD homes are eligible for FHA financing, so be sure to check with your real estate professional. If you have a credit score of 580 or higher, your down payment would be just 3.5 percent on an FHA-eligible property.
Can you buy a HUD home to flip?
Yes, you can purchase a HUD home to flip after the exclusive listing that sells to owner-occupants. When the sale is opened up, investors, brokers, and other buyers may consider the property and make an offer on the home.
When buying a HUD home as an owner occupant, how long do you have to live in a HUD home?
If you purchase the home as an owner-occupant, particularly during the exclusive listing period, you are agreeing to live in the home for twelve months. You will not be eligible to purchase another HUD home listing for two years following this purchase.
If you purchase a HUD home under the Good Neighbors Next Door incentive, you are required to reside in this property for three years in order to maintain your fifty percent discount.
How long do I have to live in a HUD home?
You must live in a HUD home for twelve months if you purchase it as an owner-occupant. Those who buy homes with the Good Neighbor Next Door incentive agree to live in the property as a primary residence for a minimum of three years.
HUD Homes in Conclusion
Purchasing a HUD home can make homeownership significantly more affordable for you. This government program is a great way to score a real bargain on the property of your dreams, particularly if you are willing to and able to put the effort into a fixer-upper.
Many of the HUD homes do come with a long list of repairs that need to be made. However, you can transform this property into the home of your dreams with a little time and money.
You can contact a real estate professional today to find out more about the available listings in your area.
Applying for the beneficial VA home loan program comes with its own set of specific VA loan requirements and criteria for both the buyer and the seller.
Both parties should be well informed about what to expect throughout the process to equip you to make better decisions. The entire process can move smoother if you anticipate what the lenders will require of you in advance.
VA Loan Requirements: What Buyers Should KNow
For buyers, the requirements are relatively simple. You must obtain your Certificate of Eligibility that proves you met the service requirements necessary for the Department of Veterans Affairs entitlement.
There are multiple ways to go about obtaining your COE, including allowing your lender to do the work for you, mailing away for it, or completing it through the eBenefits portal.
You can find more information on how to receive your Certificate of Eligibility here.
Beyond the specific criteria for a VA home loan, you will also need to meet the financing requirements set out by your lender.
The financing is partly guaranteed and backed by the Department of Veterans Affairs, but they are not responsible for issuing the loans.
You will need to find a private lender at a local bank or mortgage broker for financing. Click here to pre-qualify today!
As a result, the financing requirements can vary based on the lender you select. These requirements could include a minimum credit score, certain income requirements, and a reasonable debt-to-income ratio.
You must also select a property that is eligible for the loan and can pass the appraisal process.
VA Loan Requirements: Important Seller Information
Sellers will encounter far fewer requirements with the VA loan program. In fact, they face almost none of the paperwork or red tape that buyers will occasionally encounter. They may face higher costs when it comes to selling the home to a VA buyer though.
For example, the VA has certain non-allowable fees which limit which services and costs can be passed onto the buyer. This is designed to help lower the overall cost of homeownership for veterans.
The processing or underwriting fee may be waived on a VA home loan or the seller will foot the bill for it. In addition, you may be responsible for paying the settlement or closing fee.
Combined, these costs could add up to almost $3,000.
The home must also meet certain criteria that fall under the minimum property requirements set out by the program. This will be determined through an appraisal by a third-party VA loan appraiser.
As a seller, you do maintain the right to refuse an offer on your home based on their approved financing through the VA loan program.
Discrimination against VA loans is illegal!
You cannot simply disregard an offer simply because the buyer is a veteran, however you can negotiate a deal that is much more favorable based on the estimated costs you will face as the seller.
How Do VA Loans Work
Receiving a VA home loan means that you may be able to save thousands of dollars on your mortgage compared to traditional financing options. You may find that the process works a little differently than you would expect.
The Department of Veterans Affairs backs each loan in part with a maximum eligibility of $36,000.
This hefty sum often replaces the need for the traditional down payment that once provided peace of mind to the lender. Instead, the VA is offering up their own funds as security on the loan. Lenders are able to offer more favorable terms due to the security this government backing affords to them.
Buyers can greatly benefit from the lender’s security in the loan. This means that lenders may be willing to take a greater risk on individuals and families who don’t meet their standard profile for conventional financing.
The lender may be more apt to approve clients with a slightly lower credit score or a higher debt-to-income ratio.
VA Loan Benefits for Buyers
You will also receive a couple of major perks to financing a new home through the VA loan program.
In most circumstances, buyers are not required to place a down payment on the home. This automatically becomes the source of the most significant savings for prospective home buyers.
They may have previously spent years scraping together a savings account large enough to accommodate a twenty percent down payment.
By waiving this massive sum, homeownership can become a reality on a much shorter timeline.
Conventional financing also requires borrowers to pay private mortgage insurance (PMI) on any loan that has a down payment of less than twenty percent.
This fee is waived on a VA home loan as a result of the guarantee issued by the federal government.
Not paying PMI can mean a significant source of savings for you on a monthly basis.
Consider that the average home in the United States costs roughly $200,000. Private mortgage insurance runs between 0.3 percent to 1.5 percent of the home’s value on an annual basis.
This could save you up to $3,000 each year or $250 per month.
Buyer Requirements
Before you start entering into the process of purchasing a home with a VA loan, you should be aware of all the buyer requirements.
This is an incredibly beneficial program, but it does have certain standards that must be upheld if you would like to receive financing.
The biggest requirement is that you must find a property that meets the minimum property standards.
The loan itself is relatively flexible on the type of home that you can purchase with this financing. For example, you can purchase any of the following property types:
Single-family residence
Condo in a VA-approved project
Manufactured home or lot
No matter which type of property you plan to purchase, they must all meet the criteria set out by a VA appraiser.
These criteria are known as the minimum property standards, sometimes abbreviated as the MPS. The majority of the requirements are in place to ensure that veterans are purchasing homes that are safe and sanitary.
During the appraisal process, your independent appraiser will be looking for key issues with the property in areas including:
Clean running water
A working sewage system
Adequate heating
Issues with the electrical system or other mechanics
Roofing condition
Termite inspection
It should be noted that an appraisal differs from a thorough property inspection. While it may catch some major issues with the property’s safety into the foreseeable future, the appraisal is only a general glimpse at the living conditions.
An inspection is much more thorough with an eye for detail in many of these systems.
Credit Qualifications
One of the key questions regarding the buyer requirements is related to the credit score necessary for financing. The good news for many prospective applicants is that there are no minimum credit scores required to receive a VA home loan.
Instead, lenders are encouraged to take a look at your entire profile before making a decision on whether to issue you a loan.
The minimum credit score any particular lender will accept can vary widely. Some will have their own benchmark scores that they use for determining approvals.
However, if you can find a lender that is willing to work with your credit score, the VA will still back the loan. This presents the opportunity for prospective applicants to receive financing even if they have poor credit.
If you don’t qualify for one lender, don’t be afraid to apply for a VA loan at another lender. You may be surprised to receive a different answer.
Seller Requirements
Many sellers are hesitant to accept offers from buyers who plan to use the VA loan financing. There are a lot of misconceptions regarding how the process works for financing and what the seller VA loan requirements are.
Fortunately, there are very few requirements placed upon sellers who accept an offer through the VA loan program.
One of the largest myths regarding the buying process is the turnaround time. They believe that the turnaround time on loans will be much longer than that of conventional financing.
However, the new and more refined VA loan program is more streamlined than it was in the past. Many of the processes now are done through the online portals instead of through the much slower process of using the United States postal service.
Currently, the average turnaround time on a closing is just 43 days compared to the months that many sellers anticipate.
You will also want to use a great listing agent who is familiar with what the minimum property requirements will be. They should be able to advise you if the home will meet the standards that appraisers are searching for with the VA loan requirements. If your home is a massive fixer-upper, you may need to consider that the home is a better fit for the FHA 203k loan.
The other major component to accepting VA financing is that you may be responsible for some of the “non-allowable fees” on the loan. The amount of money and fees that you will be charged based on the loan will be dependent on the lender.
Some of the fees may be waived by the lender or passed onto you as the seller. These can include a processing or underwriting fee, as well as the escrow, settlement, or closing fee.
VA Loans Restrictions
While there are many advantages of the VA loans, there are some restrictions placed upon buyers for the type of properties and fees that are eligible.
Property Restrictions
The type of properties that qualify for a VA loan is rather extensive, ranging from single-family homes to manufactured homes to condominiums in a VA-approved project. You can even purchase modular homes or build your own home. The only major restrictions are vacant land and co-ops.
However, this doesn’t mean that every property that falls into one of these categories is going to qualify for a VA loan.
It must still meet all of the minimum property requirements during the appraisal process. They will be looking for homes that provide adequate living space in a safe and sanitary environment.
These can include standards such as issues with running water, electrical problems, roofing disrepair, and other key issues that could be integral to the health and safety of the property.
Keep in mind that you may discover issues with the home during an inspection that are not present during the appraisal.
These will not necessarily prevent you from purchasing the home, but they should be taken into consideration before you make a final decision.
Title Restrictions
You will have a difficult time meeting the VA loan requirements if there are going to be title restrictions on the new property. These restrictions can include anything that would make it difficult or impossible for the new homeowner to sell the property at will.
They should be able to sell the home on the real estate market whenever they desire, without the approval of a homeowner’s association or condo project approval.
If your new loan comes with a “right of first refusal” or other title restriction, your financing could be in jeopardy. These restrictions must be disclosed before closing and may be evaluated during the appraisal process.
Closing Cost Restrictions
When it comes to making your purchase official, there are lots of restrictions on what veterans can and cannot pay for.
These closing cost restrictions apply to the overall bills associated with attorney’s fees, underwriting, escrow fees, processing, documents, and tax services. Bills that fall into these categories are considered “non-allowable” and must be handled differently.
The most common method of paying these bills is to pass them onto the seller. You may include the necessity of covering these charges directly in the offer you make to the seller.
This allows the seller concessions (the money they contribute to the closing costs and purchase of the home) to be included in your contract.
It should be noted that a seller can only contribute up to four percent of the purchase price of the house.
The money can be used to cover the closing costs or the funding fee required for a VA home loan.
The real estate agent may also cover a portion of these costs in some states based on the percentage of commission they will make from the sale.
In other situations, the lender can waive or reduce the overall closing costs. They may also bundle some of them into an origination fee that can be paid by the borrower.
VA Loan Requirements FAQs
Is there a minimum credit score for a VA loan?
There is no minimum credit score for a VA loan. The minimum credit score for a VA home loan is set by the individual lenders who will issue the financing.
The financial backing of the government encourages lenders to take a look at the entire profile of a prospective applicant instead of basing decisions on credit scores alone. If you can find a lender who is willing to work with you, the VA will still guarantee the loan.
Do I qualify for a VA loan with a general discharge?
Yes, you can qualify for a VA loan with a general discharge. You can qualify with anything other than dishonorable discharge.
How many times can you use a VA loan?
You can use the VA loan multiple times as long as the entitlement is paid back.
Do You Have to Pay PMI on a VA Loan?
VA loans do not require private mortgage insurance or PMI. This can mean substantial savings compared to more conventional forms of financing.
How do I get a VA loan Certificate of Eligibility?
You can receive a VA loan Certificate of Eligibility by applying through your lender, through the eBenefits portal, or in the mail.
With online applications for the COE, you may receive a response in just seconds or minutes.
You must meet the service requirements that are set out by the Department of Veterans Affairs, including the length of service and other than dishonorable discharge. You can view the full list of requirements to receive a VA loan in our article here.
Conclusion
The benefits of obtaining a VA loan are far-reaching and have the potential to save you thousands of dollars over the course of your loan. Particularly for buyers, you can experience the advantages quickly and easily if you meet the VA loan requirements.
Sellers will have few responsibilities apart from ensuring the safety and sanitation of the property.
Knowing what to expect in advance can help you to make a wiser decision on the purchase of a home, as well as to anticipate the rest of the process.
You can start preparing for the purchase of a new home by looking over the VA loan requirements today.
Being a single mother is not easy, trying to raise a child, work, and keep up with all the duties of daily life can be overwhelming. With all that stress and work in life, the dream for many single mothers of owning their own home can seem out of reach. Luckily, there are options for home loans for single mothers and other assistance to help them become homeowners.
Single mothers have quite a few options when it comes to buying a home. This is generally a mix of loans options that are easier to get or more affordable than traditional loans, or grants and incentive programs that can help ease the burden of purchase. In a lot of cases, a home buyer can use multiple of these in conjunction with each other.
For example, they might be able to secure a low down payment loan through the FHA, and then receiving additional incentives through a tax credit at the end of the year.
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Home Buying Programs For Single Mothers
For the single mother, there are multiple programs available that can make the home buying process easier. Not all of these will be applicable to everyone though, so it’s important to read through them and determine your eligibility. Here are some of the most popular programs, how they can help, and what it takes to qualify.
FHA
FHA loans are some of the most popular loan types among first time home buyers and those having difficulty acquiring a traditional mortgage. While not strictly for single mothers, it is definitely a loan type worth considering.
With this type of loan, the FHA backs it or guarantees a certain portion of the loan in the case of a default. This lessens the risk greatly for the lenders, which is then passed onto the borrower in less strict requirements for both down payments as well as credit scores.
To start, FHA backed loans only require a 3.5% down payment, which is significantly less than the standard 20% for traditional mortgage loans.
This makes it much easier to save up a down payment, especially for a single mother with only one source of income. You are always free to put down more, and doing so can help offset an issue in another category (such as a low credit score) or help secure a lower interest rate.
Next, the credit score requirements are much more lax. Generally, lenders look for scores of 580 or more, but many are willing to drop to as low as 500 for a larger down payment. This creates a good opportunity for lower credit score individuals to secure a mortgage. The FHA loans also are very generous in the debt to income ratio, generally looking for 41% or less.
Who Qualifies?
Outside of this there are no specific requirements for who can take out a FHA backed loan. Many believe it is only for first time home buyers, but that is not true and anyone regardless of home history can apply for one. To do so, look for a lender that is specifically licensed to work with these types of loans.
It’s also important to take note that the property itself will have to undergo an inspection by a licensed FHA inspector. Certain major issues can prevent a home sale from going through under this type of loan unless the issues are fixed.
VA Loans
For single mothers that are veterans, the VA loan program is an excellent choice on the path to affordable housing. VA loans are loans backed by the VA specifically for veterans and their families, and the benefits can be used multiple times over an individual’s lifetime.
The major benefits of a VA loan are no down payment and low interest rates. Due to the backing of the VA, loans taken out in this program are able to done with 0 down payment. This is huge as one of the most difficult parts for single mothers is coming up with the large sums needed for a down payment.
VA backed loans also come with some of the best interest rates available. This is a huge money saver as even a few percentage points can add up to tens of thousands over the lifetime of the loan. This once again is fantastic for single mothers as lower interest rates mean lower payments, helping them stretch their income further.
Who Qualifies?
The VA loan program, as the name suggests, is only open to veterans and a few select dependants. This extends to most branches of the military. While the requirements for this type of loan are more strict, the benefits of it make it an excellent choice for anyone who does qualify.
Like the FHA loan, VA backed loans also require a home inspection by a licensed inspector. They will go over the house and look for major health or safety issues that must be fixed before the home can be sold. They’ll also offer an appraisal, which will attempt to put a fair market value on the home, and also help keep the buyer from overpaying.
USDA Loan
The USDA Loan program is a special program available for those looking to purchase a home in certain rural areas of the country. For thoses that qualify, they’ll be able to get a loan for the entirety of their home without having to put any money down.
In addition to requiring no down payment, mortgage insurance on a USDA loan is significantly cheaper than others. Due to the large guarantee from the government on these type of loans, the lenders are able to give a bit of leeway. Both of these combined help single mothers and other low to moderate income families purchase a home without breaking their bank.
Who Qualifies?
The first big requirement for this type of loan is credit. In most cases, borrowers need to have a credit score over 640, which is a bit more than some other programs.
While being below this won’t necessarily exclude you, it will make things more difficult and likely require a more in depth review of your ability to repay the loan. There’s also some income requirements, making too much can exclude you from the program as it is meant for low to moderate income individuals.
The next requirement is location. Unlike some other more universal options,the USDA loan is specifically for people looking to purchase homes in rural communities. The USDA provides a map of the current locations available, which currently sits at upwards of 97% of the entire United States.
For those looking to move to one of these locations, the USDA loan is a great choice. While the no downpayment is certainly nice, having the reduced mortgage insurance payment is quite good as well. Some families report it saves them upwards of $100 per month than had they gone the traditional route.
There is also always the option to take a conventional mortgage. While traditionally a down payment of 20% was considered the minimum, lenders have opened up to those coming with less. They’ve also been a bit more lax on credit requirements, although having good credit can only be a benefit in mortgage negotiations.
The biggest downside to getting a conventional loan with under 20% down payment is the requirement to then hold private mortgage insurance or PMI. PMI is an additional charge on top of the loan payment that helps protect the bank in case of a default. Even if you have stellar credit, there’s no way around this.
Because of the required PMI or large down payment, conventional mortgages are likely to be last on the list of options. That said, they are by far the most open, and those that don’t qualify for any of the other options would still be able to apply for a conventional mortgage.
Home Buying Assistance for Single Mothers
Not all sort of aid comes in the form of loans. In many states, there are programs to help single mothers, or low to moderate income individuals secure a home loan.
In some cases, these programs come in form of a grant, which does not need to be repaid like a loan.
A lot of these programs for example help with down payments, and can help cover a percentage of the necessary down payment. This in turn reduces the money you need to borrow, which reduces your monthly payment, and ultimately saves thousands of dollars.
Many of these are offered at the state, county, city, or even neighborhood level.
Many of these programs are offered towards low to moderate income families, so they might not always say specifically for single mothers. It pays to do a bit of research to see what sort of grants and programs are in your area.
It’s also a good idea to talk to an agent or lender, and see if they can help by pointing out any such programs.
Mortgage Credits
Many states also offer some sort of mortgage credit or similar tax write off. Many of these are exclusively for first time home buyers, and allow you to write off a portion of home ownership on your taxes, typically in interest paid on the mortgage.
What this allows you to do then is adjust your withholdings on your income, which in turn leads to higher take home pay. This then looks attractive to lenders and can help secure you the loan.
Profession Based Loans and Programs
Depending on your profession, there might also be additional discounts or grants available. Many states run programs that provide housing assistance for teachers, police officers, firefighters, and other public servants.
These sorts of programs are great ways to help reduce the burden of the mortgage and can help with everything from the downpayment to the interest rate.
For example, Texas has the Homes for Texas Heroes Program. Among other things, this program provides down payment assistance of 3-5% of the loan which does not need to be repaid.
Many states or cities offer similar incentives, so it pays to do a little bit of research and see what options are available in your area.
The key is to keep your eyes open, as these sorts of programs are all around the country and can add up to big savings for you.
Home Loans For Single Mothers
As a single mother buying a home can see like an unreachable goal, but it doesn’t have to be. With the large number of loan programs available there is assistance at every step of the way.
Whether it’s the down payment, or the price of the house itself, there are multiple programs that help to make buying a home more affordable. The important thing is to do a bit of research to find out what’s available in your area. You might just be surprised how affordable owning a home can be!
FAQ
What’s the Best Way For a Single Mother To Buy a Home?
It really depends on the situation of the buyer. Due to the large number of options, there’s likely to be a different best option for each individual. For example, the best option for a veteran is likely to be the VA backed loan, but that doesn’t apply to everyone.
Does Child Support Count as Income?
Yes! Child support can count as income when applying for a mortgage loan. Make sure to provide proof of payments to the lender, as they will want to be reasonably sure that you will keep receiving them.
What Programs are Available Near Me To Buy a Home?
It’s difficult to answer as there are many programs that are specific to state or smaller. While the federal programs like the FHA and VA loans are available country wide, each state and city is likely to have its own set of incentives. It’s definitely worth doing a little research, or speaking with an agent familiar with the programs near you.
Purchasing a new home with a VA loan requires your home to pass the appraisal process instead of falling victim to some of the common VA appraisal problems. Unfortunately, not every property will be able to adhere to the stringent guidelines set out by the program.
This can be easily avoided by selecting a safe property, but it also helps if potential homebuyers can anticipate some of these common VA appraisal problems during their shopping period.
You Might Already Be Pre-Qualified For A VA Loan In Your State – Click Here!
The Department of Veterans Affairs (VA) agrees to back a portion of every loan using federal funding. Their guarantee makes private lenders more likely to issue loans with more favorable terms and financially advantageous features to veterans and active duty service members.
Because the government is agreeing to back these mortgages, they also want to ensure that their own interests in the property are protected by the VA appraisal process.
In a VA appraisal, a third-party inspector is hired by the government to take a look at a prospective property for home buyers. This person is checking to ensure that the home meets the minimum property requirements that make it safe and sanitary for veterans to live in long-term.
A home that fails to meet the requirements according to the appraiser’s findings will no longer be eligible for the VA home loan until those issues are corrected.
What Are the Common VA Appraisal Problems?
Every property that is purchased using a VA home loan must meet certain minimum property requirements (MPRs). These items ultimately comprise the VA appraisal checklist.
These are qualities that prove that the home is safe and sanitary for a veteran to live in. While it may seem like a few of these characteristics are relatively arbitrary, homebuyers should actually be grateful they exist. This is the government’s way of helping to protect homeowners from purchasing a house that could potentially be a money pit or unfit for veterans to live in.
Some of the minimum property requirements are relatively easy to guess: the home must have no obvious safety issues, have adequate living space, must be zoned for residential use, and essential systems must be in great working order. For a more extensive list of the MPRs that an appraiser will be looking for, see the list below:
Adequate heating
No electrical or plumbing problems
Clean drinking water
No roof issues
No lead paints
No termite or pest infestations
No obvious issues with the infrastructure or defective construction
Property accessibility
Within each of these categories, there are a few common VA appraisal problems that homeowners face. For more information on what issues could jeopardize your funding, you can see the breakdown of some of these common issues below.
Common VA Appraisal Problems
Mold and Mildew: Mold can be particularly hazardous to your health, even with just short-term exposure. The VA appraiser is going to be keeping an eye out for any mold spores or mildew growth that could the sign of a much larger moisture issue.
Exposed Wires: Have you ever looked at a home that had bare wires and felt good about the state of its electrical system? Most appraisers and inspectors will immediately flag a home that shows signs of electrical disarray. These issues can be extremely expensive to repair and could lead to major issues like fires.
Check around, particularly near the breaker box, to make sure nothing stands out to you or you could be facing one of these common VA appraisal problems.
Windows: Windows are an important part of a home because they allow ventilation and serve as a secondary means of escape during emergencies. Perhaps this is why appraisers will be checking to ensure that they are all in fully operable condition.
They should be able to open and the panes should be free of major cracks or chips. A missing pane will definitely raise some red flags for an appraiser. This is an item you can investigate before you ever even complete a walkthrough of the home to help you avoid this common issue.
Insufficient HVAC: Not all areas are required to maintain both heating and air conditioning. However, heating is a priority and a must-have feature in every home. Even if you don’t feel like the heat is completely necessary, a non-functioning furnace will derail a VA appraisal.
This prevents you from being able to maintain a comfortable living condition in the event of a winter disaster.
Roofing Problems: Did you notice that steady drip that comes straight from the ceiling? Whether you can tell there are shingles loose or you can see the beginning of a major roof leak, a VA appraiser is going to take a relatively thorough look at the roof.
After all, this is what protects the entire home from the elements and windy weather. If you see a roof problem, it is most likely going to need to be corrected before you can close on the home.
What Should I Do if the Home Fails the VA Appraisal?
If the home fails the VA appraisal, that doesn’t necessarily mean that all hope is lost. You have a few alternative options to secure the funding you need to make the home your own.
However, you will have to ensure that any issues raised by the appraiser are corrected before the lender is going to issue the financing you need to purchase the property.
You can definitely request that the seller make the necessary repairs before you’re willing to close on the property. Some sellers are more than willing to make the much-needed repairs in order to secure a buyer for their home. However, others may still hold out hope that they can sell the home without sinking another penny into its cost and maintenance.
If this describes your seller, you might choose to pay for the cost of the repairs yourself. This is a risky endeavor because you will be putting money into a home that you do not yet own.
Using this method, you can ensure that the home receives the repairs it needs from a contractor of your own choosing while still securing your financing. Unfortunately, these funds must be paid for upfront without the ability to bundle them into your principal loan balance. This isn’t a financial possibility for many prospective home buyers.
If the property simply doesn’t appraise for the value of the sale price, you can ask for a Reconsideration of Value and challenge the VA appraisal. It is possible that the appraiser either made a mistake on the square footage of the home or didn’t account for any recent upgrades to the property.
In other situations, they may not have used truly comparable real estate listings to make their comparison for value. For more information on how to challenge a VA appraisal, you can see our article on it here.
Last but not least, you can choose to walk away from the property altogether. If your appraiser identified a lot of major issues that will come with a significant repair bill, you might want to consider whether you can afford to repair and maintain this property long-term.
More repairs might be coming after you finish covering the cost of these, and that is just to meet the minimum property requirements. Walking away could save you more in the long run.
Conclusion
The VA appraisal process exists to help protect veterans from purchasing homes that will cost them a small fortune in repairs. While there are quite a few standards set in order for a home to meet the minimum property requirements on the VA appraisal checklist, they are all ultimately in the best interest of the veteran purchasing the home.
If you encounter any of these common VA appraisal problems, your financing is likely to be derailed until you can have them remedied.
The solution to your common VA appraisal problems may not always be entirely clear. You will have to weigh all of the options based on the issues at hand before you make a decision. Be sure to talk with your lender about any of these issues that might show up on your upcoming appraisal.
Frequently Asked Questions
How long does it take for my VA appraisal to come back?
It should take approximately ten business days or less to put together the full report from your VA appraisal. It may take longer in areas that have fewer independent inspectors to complete the task.
How much does a VA appraisal cost?
A VA appraisal is the responsibility of the buyer and it usually costs between $300 and $500.
How much does it cost to challenge a VA appraisal?
There is no cost to challenge a VA appraisal. This is simply a review of the previous appraisal alongside any new or differing data from the first visit. Unless there is a request for an increase of 10 percent value or more, there is no need for an additional walkthrough.
There are a lot of great reasons to own a home. It’s a long-term investment in your future. It’s an asset that can become more valuable over time. And you have the security and pride that can only come from owning your own property. But as we all know, owning a home is often a difficult and expensive process. It’s important to select the mortgage program that works best for you. So, for a lot of folks that means looking at an FHA loan in Illinois and the FHA loan requirements Illinois.
We’ve compiled a list of some of the most common questions about Illinois FHA loans and answered them – and if you’re from Illinois yourself, maybe you’ll find that this type of mortgage is right for you. You don’t have to move to Illinois for that. It is a Federal program that wants you to have a house! So, FHA loan requirements Illinois work in all of the US!
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What is an FHA Loan in Illinois?
An FHA loan is a type of housing loan that is insured by the Federal Housing Administration, which is a department of the United States federal government.
The loan is still issued by a private moneylender or bank, but because the FHA promises the reimburse the lender if you can’t make your payments, lenders are willing to make much more substantial loans than they would otherwise.
In some cases, they will even grant mortgages to applicants who they would normally reject outright! This makes the FHA Loan a great choice for first-time homeowners, low-income families, and buyers who are interested primarily in making a low down payment.
What are the different types of FHA loans in Illinois?
When most people talk about FHA mortgages, they’re thinking of fixed-rate FHA loans. But there are multiple alternatives in this option, and homeowners in Illinois should familiarize themselves with all the options available in their state so that they can pick the FHA loan that’s right for them:
A 5-year adjustable-rate FHA loan in Illinois is an option that’s ideal for low-income and moderate-income families who are buying their first home. An adjustable-rate loan starts at an interest rate that’s lower than the fixed-rate, usually by about one percent. This interest rate holds for five years without changing, which gives the loan recipient time to save up for the larger payments to follow.
A fixed-rate FHA loan in Illinois is an option that’s recommended for buyers who want a home but who haven’t been able to save up money for the purchase, often young first-time buyers who have just graduated college or who are recently married. A fixed-rate loan keeps the same interest rate for the entirety of the payback period, which is usually either 15 or 30 years. If your payment changes at all, it will only be slight adjustments arising from deviations in insurance or property taxes.
A condominium unit FHA loan in Illinois is for loan applicants who want to buy a condominium unit instead of a traditional house. Condominium units usually – but not exclusively – appeal most to low-income and moderate-income singles.
Advantages of FHA loan in Illinois
FHA loans are the most popular in the country – in fact, roughly 30 percent of all home loans in Illinois are insured by the FHA. It’s not hard to see why when you look at the advantages:
FHA loans Illinois has a much smaller down payment, charging only 3.5 percent of the total home’s value instead of the more typical 20 percent. This is the biggest advantage of an FHA loan and why this type of loan is most popular with buyers who haven’t been able to save up a lot of money for the purchase of a home.
FHA loans in Illinois have much more flexible requirements. FHA-insured lenders will accept credit scores of only 580 and have no minimum income requirements. They also allow for a much higher debt-to-income ratio than traditional mortgages – sometimes approving D-I ratios as high as 50% in place of the usual 31%.
Because they’re backed by the US Treasury, FHA loans are seen as a much safer investment by moneylenders. As a result, they’re much cheaper upfront and much more accessible and traditional loans. However…
Disadvantages for an FHA loan
By now, the advantages of an FHA loan in Illinois should be obvious. But this type of loan can come with disadvantages as well, which is why it’s always best to find the mortgage that works for you. There is no “one size fits all.”
FHA loan recipients have to pay an FHA funding fee which usually comes out to about 1.7 percent of the total mortgage. This fee goes to the Federal Housing Administration and is a way for them to protect their investment. Think of it as an insurance premium.
FHA loan recipients can’t cancel their Private Mortgage Insurance until they’ve completely paid off the home. In Illinois, conventional mortgages typically let homeowners cancel their PMI after they have accrued equity equal to 20 percent of the total value of the property.
FHA loans tend to have slightly higher interest rates, which is how the banks and moneylenders make back their money from the small upfront down payment. This means that FHA mortgages usually cost less upfront but can end up costing more than a conventional loan in the long run.
What properties qualify for an FHA home loan?
FHA loans often have lower loan limits than some conventional mortgages. You can see a per-country list that’s up-to-date for 2020 here, but for most counties in Illinois FHA loans can only pay off a property that costs $331,760 or less.
This is perfect for a low or moderate-income family but may hurt those who are looking at high-cost areas.
In addition, properties have to meet certain eligibility requirements. You can check them out in the 21-page checklist in Chapter 3 of the Department of Housing and Urban Development’s Handbook 4150.2.
The house will have to go through an inspection and appraisal. This can be a bit of a hassle – but it’s worth it. Most of these guidelines are safety standards; among other things, appraisers will look for:
Faulty HVAC system
Roof leakage
Plumbing leakage
A lack of hot water
Low water pressure
As well as additional requirements for condominiums, which you can see at HUD.gov. Believe me, these are things you want if you’re committing to paying off a property for 30 years.
How important is credit when applying for an FHA loan in Illinois?
If you’re applying for a loan, you need a certain amount of credit, but FHA loans Illinois have much lower credit requirements than conventional loans. In Illinois, FHA Underwriters usually require a FICO credit score of 580 and will require three open tradelines on your credit report. Each report needs to have been there for a minimum of 12 months.
However, having a credit score under 580 won’t necessarily keep you from qualifying. Some banks will accept credit scores as low as 500 – but be aware, they will need to make up for that elsewhere.
Lower credit scores usually mean higher down payments – sometimes as high as 10 percent. That’s about 3 times the down payment on a typical FHA mortgage, though it’s still lower than most conventional home loans.
In addition, you may not have to have a traditional FICO credit score to meet FHA loan requirements Illinois. Some lenders will now allow alternative forms of credit. A good example is a long-standing account with your phone or cable company, in place of a credit score.
What are the FHA loan requirements in Illinois?
In 2020, the minimum requirements for an FHA mortgage in Illinois are:
A minimum credit score of 500 or two forms of alternative credit.
A property that is worth less than $331,760 (this varies by county) and meets the minimum property standards
A debt-to-income ratio of 50 percent or less
These are the minimum requirements set by the state and federal government, though lenders will often set their own standards. For example, almost all FHA Underwriters require a credit score of 580. They also seek a debt-to-income ratio of around 30-40 percent. This gets the lowest possible down payment.
However, it’s always worthwhile to “shop around” for a lender that can meet your needs.
How do you receive an FHA loan in Illinois?
Despite a common misconception, the Federal Housing Administration doesn’t originate FHA mortgages. You will need to find a bank, mortgage company, or another moneylender who works with the government to give out these kinds of loans.
Because these loans are so popular, most lenders will probably have some kind of FHA program in place.
Once you’ve shopped around and found an FHA-partnered Illinois lender with terms that work for you, you will have to apply for the loan. A representative will ask for proof of your job history, credit score, and income documentation. They will check all this to make sure you fit the federal requirements listed above as well as the requirements of the moneylender.
This process works just like it does for any other loan.
What are the FHA loan rates for Illinois?
That depends. The real estate market is in a constant state of flux and loan rates often change on a daily basis depending on current economic indicators.
Besides, Illinois is a big state – the rates in Chicago will be different than the rates in, say, Galena. Do research to see which vender in your area is offering the lowest rates. So, your payments won’t become too much to handle down the road.
Do you have to be a first-time homebuyer for an FHA loan in Illinois?
No – there is no truth to this common misconception. FHA loans are often recommended for first-time homebuyers because their advantages appeal most to that income bracket. Anyone who meets the minimum requirements printed above can apply for this type of loan.
What is the maximum income limit for FHA loans?
The idea of a “maximum income limit” is another common misconception with no truth to it.
FHA loans are usually best for those in low or moderate-income brackets. It has steep loan limits and somewhat higher interest rates. The best is that there is no maximum income limit for FHA loan applicants in the state of Illinois. So, you got this. You can become a homeowner now!
A HUD home is a property that is currently owned by the Department of Housing and Urban Development. The federal government became the owner of these properties at some point during the foreclosure process. 
The main reason most people pursue this type of mortgage is that they want to find a spectacular deal during their next home purchase. 
You can search for a property on the HUDhomestore.com website by using their search feature to look in your desired area. You can narrow it down to state, city, county, or zip code for a very narrow scope on where you would like to reside. 
Compared to a conventional mortgage that typically requires a twenty percent down payment, this can save you thousands of dollars and put homeownership on your radar in the more immediate future. 
Some homes come with a much longer list of necessary repairs than others. If you stumble upon a home that is a real fixer-upper and you’re willing to do the work, you may qualify for the FHA 203K loan. 
Applying for the 
You will also receive a couple of 
Before you start entering into the process of purchasing a home with a VA loan, you should be aware of all the buyer requirements. 
One of the key questions regarding the buyer requirements is related to the credit score necessary for financing. The good news for many prospective applicants is that there are no minimum credit scores required to receive a VA home loan. 
The type of properties that qualify for a VA loan is rather extensive, ranging from single-family homes to manufactured homes to condominiums in a VA-approved project. You can even purchase modular homes or build your own home. The only major restrictions are vacant land and co-ops. 
Being a single mother is not easy, trying to raise a child, work, and keep up with all the duties of daily life can be overwhelming. With all that stress and work in life, the dream for many single mothers of owning their own home can seem out of reach. Luckily, there are options for home loans for single mothers and other assistance to help them become homeowners.
FHA loans are some of the most popular loan types among first time home buyers and those having difficulty acquiring a traditional mortgage. While not strictly for single mothers, it is definitely a loan type worth considering.
Outside of this there are no specific requirements for who can take out a FHA backed loan. Many believe it is only for first time home buyers, but that is not true and anyone regardless of home history can apply for one. To do so, look for a lender that is specifically licensed to work with these types of loans.
For single mothers that are veterans, the VA loan program is an excellent choice on the path to affordable housing. VA loans are loans backed by the VA specifically for veterans and their families, and the benefits can be used multiple times over an individual’s lifetime.
The VA loan program, as the name suggests, is only open to veterans and a few select dependants. This extends to most branches of the military. While the requirements for this type of loan are more strict, the benefits of it make it an excellent choice for anyone who does qualify.
The first big requirement for this type of loan is credit. In most cases, borrowers need to have a credit score over 640, which is a bit more than some other programs.
The 
If the home fails the VA appraisal, that doesn’t necessarily mean that all hope is lost. You have a few alternative options to secure the funding you need to make the home your own. 
But as we all know, owning a home is often a difficult and expensive process. It’s important to select the mortgage program that works best for you. So, for a lot of folks that means looking at an FHA loan in Illinois and the FHA loan requirements Illinois.
