Do you want to buy a home in Albuquerque, but don't have the best credit or a high income? Don't give up, because your goal of owning a home can become a reality, even in these uncertain times.
If you don't qualify for a conventional mortgage, you may qualify for one of a couple of government-backed loan options – the FHA Home loan and the USDA Rural Development loan. These loan options were created years ago by the Federal Governmebt to help low- and middle-income earners achieve homeownership. That means you don’t need a high paying job, a lot of money in the bank, or the best credit to qualify. You just need to show that you have a steady income that has lasted at least 2 years.
There are ups and downs to both of these loans. Here's an overview of what is required and what they offer.
Down payment requirements
FHA Loan
With the FHA loan, you only need 3.5% of the purchase price for the down payment. For example, that’s $3,500 for a $100,000 loan. If you’re having trouble coming up with the down payment, FHA allows your down payment to be a gift from your parents or another relative.
USDA Rural Development
With this loan, you don't need a down payment. You can finance up to 100% of the property value, which, in some cases, can be above the home’s purchase price. In these cases, you can finance your closing costs as well. So if the property value is $5000 above the purchase price, you can borrow that extra money, as long as you apply it to the closing costs, which can run into the thousands of dollars.
TAKEAWAY: If you have little cash on hand, the Rural Development loan offers more flexibility.
Income Requirements
USDA Loan
USDA Rural Development loan income limits vary by location and household size. For the majority of U.S. counties, USDA loan income limits are $82,700 for 1-4 household members and $109,150 for 5 or more.
USDA Rural Development
The Rural Development loan was created to help individuals with a modest income buy a home. In order to satisfy this goal, the USDA requires that lenders certify the applicant’s household income to ensure it does not exceed the income limit for their area.
TAKEAWAY: If your income is above the USDA Rural Development income limits, you’ll need to go with the FHA loan.
Mortgage Insurance
Both loans require mortage insurance in the form of funding/guarantee fees paid up front. You'll also be required to pay a monthly fee which is rolled up into your mortgage payment.
Mortgage insurance is considerably higher for the FHA loan as compared to the Rural Development loan. FHA upfront insurance is 1.75% of the total loan; the monthly insurance is usually 0.85% of the loan amount. USDA upfront insurance is 1.0% of the total loan; the monthly insurance is just 0.35%.
If you're borrowing $150,000, this is what you can expect to pay:
| Loan | FHA | USDA |
|---|---|---|
| Upfront Fee | $2,625 | $1,500 |
| Monthly Fee | $128 | $53 |
| You'll owe this amount as part of a monthly mortgage payment | $229 | $150 |
Even though you have to pay extra for mortgage insurance, it's what allows you to buy a home with a lower down payment.
Location
The Rural Development loan was created to help people buy homes in areas such as those surrounding Albuquerque with lower populations. Properties in almost every area of the country outside major metropolitan centers can be purchased with a USDA loan.
If you would like to learn more about FHA and USDA loan and how they can help you realize your dream of buying a home in Albuquerque, contact us today!