Some consumers have been wanting to finally “make it” and become a homeowner, but have been torn between taking out a construction loan versus an ordinary mortgage? Why not combine the two – most really don’t have to choose!
There are several available loan programs that make it affordable to build a home or to buy and fix up a new home. The construction loan can simply convert over into part of a permanent loan once construction is complete.
Here are 4 loan options to consider that, to one degree or another and in one way or another, combine building and buying into one seamless process!
1. USDA Direct Loan
A USDA Direct Loan is a program that’s designed with low-income families in mind. The borrower can make as little as 50% of their region’s median income and still qualify.
By stretching the mortgage out to 33 or more years, and by qualifying for subsidies on mortgage payments andcan build and/or buy the dream home even if a borrower doesn’t qualify for any other loan types due to low income!
2. FHA Loans
Another low-income loan-type that can put home construction and ownership within reach of the “less economically well off” is the FHA Loan. But they will need to do the FHA 203k specifically if they want to add rehab expenses directly into the mortgage.
The down payment can be as low as 3.5%. And with 203k, they don’t have to find a property that meets FHA minimum standards – they simply get additional financing to bring it up to those standards.
This allows a person to buy lower-priced properties with the loan, and thus, makes home ownership more affordable.
3. VA Loans
For those in the military, who’ve been honorably discharged, or for wives of service members, VA loans are almost always the most affordable and most flexible home loan options.
The borrower’s credit score doesn’t have to be as good as with other loan-types, and VA loans are very lenient on debt-to-income ratio.
No down payment whatsoever is needed, and no mortgage insurance is required. And those two factors free up lots of cash per month so you can buy more home or add in construction or renovation expenses as needed.
4. Rural Housing Loans
For not only “country” but also suburban dwellers, Rural Housing Loans are available that allow the borrower to build, fix up, or simply buy a new “rural” home. Perspective buyers can also use these loans to buy a manufactured home if it will be placed on a permanent site, if it’s bought from an approved dealer/contractor, and if it meets specific standards.
The borrower can use direct or guaranteed loans for these purposes. They must have moderate, low, or “very low” income to qualify for a rural housing loan. That means 50% to 80% of their area’s median income. But they also have to be able to afford the monthly payments when they come.
However, a borrower can lower monthly payment with a 33 to 38 year direct loan mortgage, and may be able to qualify for payment assistance (which can effectively lower interest to 1% in some cases.)
These four examples do not exhaust all possible “build and/or buy” loan types for low income families or individuals. But they are among the most common ones used today. The point is that you need not assume that because their income is lower than average and can’t build the dream home or buy it and fix it up – it’s not only possible, but many others are doing it right now!
