About Government Loans for First-Time Home Buyers

Buying a house can be difficult for first-time home buyers. In many cases, they do not have a sizable down payment or good credit history to qualify for a loan. In addition to that, many of them have to pay a monthly rent for a house or apartment, which limits their ability to save money for a home. Luckily, there are government loans for first-time home buyers that can help home buyers realize their dreams.

History

The most common form of government loans for first-time home buyers is the FHA, or Federal Housing Administration loan. This isn't exactly a government loan, but a government guarantee for mortgage lenders that their investment will be protected in case homeowners default on their home loans. The FHA has been insuring loans for first-time home buyers since 1934. At the time, about two million construction employees were jobless. The mortgage loans were also difficult to get because lenders would only loan about 50 percent of the actual value of the home and repayment terms were typically spread over less than five years. There was also a balloon payment at the end of the loan. Only 40 percent of the households in the United States actually owned their own home.
Throughout the 1940s, FHA loans were used to help veterans and military personnel finance homes after they returned home from the war. For the next 30 years, the FHA helped create millions of units and apartments for handicapped, elderly and low-income people in the United States.

Significance

The FHA has also helped make some significant progress in home ownership in the United States. During the recession of the 1980s, the FHA helped thousands of people buy their own home. As a result of the FHA's actions, home ownership rose to an all-time high of more than 68 percent by 2001.

Benefits

One of the biggest advantages to these FHA loans is that first-time buyers typically need only about three percent of the home's sale price as a down payment. In some cases, the first-time buyer may even qualify for 100 percent financing, meaning they wouldn't need a down payment.
In addition to the lenient down payment regulations, getting a home loan through the FHA also provides more lenient credit guidelines. People with less-than-perfect or even bad credit can still buy a home. You do not need a credit score to qualify for a FHA loan as long as you have utility bills or other forms of payment history for the last several months.
If you have a Chapter 7 bankruptcy, you can qualify for an FHA mortgage loan just two years after your debts have been discharged. You can also qualify for a home loan through FHA if you are currently in a Chapter 13 bankruptcy and you have been making your payments on time. Finally, homeowners with a foreclosure on their record may qualify for an FHA loan three years after their foreclosure.

Size

Government FHA mortgage loans have limits on the amount of the loans. However, these limits vary greatly between states, cities, counties and the particular type of home. For instance, the FHA mortgage limits in California's Riverside County as of October 13, 2008 is $500,000 for a single-family home, $773,700 for a three-family home and $961,550 for a four-family home. In Anaheim, the limits are $729,750, $1,129,250 and $1,403,400 respectively. When looking at Michigan, the limits for the city of Flint are $271,050 for single-family homes and $521,250 for four-family homes.

Considerations

Before applying for an FHA loan, it's essential to evaluate how much you can afford to pay. Just because the federal government insures the loan doesn't mean you can let your mortgage payments lapse. Missing payments will still get reported negatively on your credit report and you can still go through a foreclosure. As a rule of thumb, your mortgage payment should be no more than 30 percent of your net income.

Resources

• All about FHA Loans
• Limits list for FHA loans