Tennessee First Time Home Owners have some wonderful choices for mortgage financing this year. The most popular home loans for first-time buyers is the Government-backed programs like USDA, FHA and VA loans. Below we will talk about each program, and discuss the advantages to help you choose the option best for you.
Many locations in Tennessee are still considered “rural” – you may be surprised. If you do choose to live in a less populated area, the 100% USDA home loan might be a great choice for you. The USDA Rural Development loan is the last remaining no down payment government-insured mortgage program for Tennessee civilians. The USDA mortgage program is designed to help promote home ownership in less populated locations around Tennessee.
Many people assume the USDA loan program is only for farmers or ranchers, not true. Many major metropolitan areas just outside of Nashville, Memphis and Knoxville still have USDA-approved zones. Interested home buyers can click here to view USDA-eligible locations in their area. The USDA loan program will allow homebuyers to borrow up to 101% of the home’s appraised value. In addition, homebuyers can roll in closing costs into their loan assuming their appraised value is high enough.
Benefits of a USDA RD Home Loan include:
- 101% Financing, No money down.
- Low monthly mortgage insurance (PMI) is almost half as much as FHA loans.
- One-time USDA funding fee that is included in your loan ( just like FHA, VA)
- No loan amount limits.
- No cash savings requirements.
- Up to 6% seller contribution for closing costs allowed.
- 100% gifted closing costs allowed
- 30-year low fixed rate loan
- No Prepayment Penalty – move or pay off your loan anytime without fees.
- Primary residents only (no rentals/investments or second homes allowed)
- 620 min credit score required for USDA rural development loans.
To qualify for the USDA loan program, there are two main requirements that differ from the other government loan programs (FHA or VA loan program)
Property Location- The home must be located in a USDA-eligible designated rural area. Keep in mind, the seller of the property is not important, just where the property is physically located. Call us at ph: 800-743-7556 to discuss your location in detail.
Household income- Each county has different USDA Income restrictions. The income limit is based on many different variables, please contact us to learn more.
The VA mortgage is certainly the best choice for military service members and Vets that have VA loan benefits. The greatest advantage is the VA loan is 100% financing with no monthly mortgage insurance costs (PMI) Eligible VA borrowers who meet all of the VA loan requirements can get a mortgage with very little to NO money out of pocket.
This accounts for the program’s popularity among those serving in the military. Generally speaking, it is easier for borrowers to qualify for a VA loan compared to a conventional mortgage (one that is not backed or insured by the government).
VA allows for lower credit standards and more flexibility overall. According to the Department of Veterans Affairs, the “VA guarantees a portion of the loan, and this backing allows the approved lender to provide you with more favorable terms.”
Like any other mortgage program, the VA loan has certain qualification requirements and standards that must be met. Let’s talk discuss the latest VA loan requirements for 2023.
VA Loan Eligibility:
You can think of VA home loan qualification as a two-step process. You must meet two sets of requirements, in order to qualify for such a loan. First, we have the basic eligibility requirements set forth by the U.S. Department of Veterans Affairs (VA). This department of the federal government manages the program and establishes the minimum requirements for VA loans.
Generally speaking, you are eligible for the program if you meet any of the following criteria listed below: If you are a Florida homebuyer and have questions, please call us 7 days a week at ph: 800-743-7556 or just submit the quick “Info Request” form on the top of your screen.
- You are a veteran who served 181 days during peacetime (active duty).
- You are a veteran who served 90 days during wartime (active duty).
- You served at least 6 years in the National Guard or Reserves.
- You are currently on active duty and have served at least 90 continuous days.
- You were discharged from the military due to hardship.
- You are the un-remarried spouse of a veteran who died while in service or from a “service-connected disability.”
Service members who have received a dishonorable discharge are generally not eligible for the program. As you can see, the eligibility requirements for VA loans are fairly broad in range. They are meant to include most service members who have served in the military for a certain length of time. Just remember the two-step system mentioned earlier.
These are the minimum requirements established by the government. But the government does not actually originate VA loans. They are originated by approved lenders, like most other types of mortgages. The government simply guarantees a portion of the amount being borrowed. So, in addition to meeting the basic eligibility guidelines above, you must also meet whatever VA loan requirements are imposed by the lender. Please read the VA lender requirements below.
Other VA Loan Requirements:
The Department of Veterans Affairs establishes clear and specific guidelines when it comes to length and type of service. But the information they offer about other VA loan requirements is somewhat vague.
For instance, the Department says “you must have suitable credit, sufficient income, and a valid Certificate of Eligibility (COE) to be eligible for a VA-guaranteed home loan.” But they offer no specific definition of suitable credit or sufficient income. This leaves borrowers wondering exactly what is required:
What credit score is needed to qualify for a VA loan? How much can I borrow based on my income? What about my other debts, do they play a role?
Listed below are the most important factors when it comes to qualifying for a VA loan.
VA Credit scores: As mentioned earlier, the Department of Veterans Affairs does not have any specific requirements for credit scores. But you can bet the mortgage lender does, and this can vary from one lender to the next. Most lenders are looking for a credit score of 600 or higher these days.
VA Debt ratios: The VA debt-to-income ratio, or DTI, is another important VA loan requirement. This is a comparison between the amount of money you earn (gross monthly income) and the amount that goes toward your fixed monthly expenses (recurring debts). Generally speaking, your total DTI ratio — including the house payment — should not exceed 48%. This requirement is imposed by the lender, not by the VA. So it varies from one mortgage company to the next.
Exceptions are often made for borrowers with excellent credit, significant savings in the bank, etc. Lender and brokers call this “strong compensating factors of the loan” Income may come from a variety of sources including but not limited to: base military pay, non-military employment, commissions, self-employed income (min 2-year history) retirement income, spouse’s income, and alimony.
VA Mortgage Documents: When it comes to VA home loan, documentation is key. The banks and lenders will request a wide variety of documents to verify your income and assets, as well as your current debt situation. They also need to verify and document your ability to repay the loan, in keeping with new lending requirements.
Documents needed for VA financing typically include the Certificate of Eligibility (COE), the Uniform Residential Loan Application (URLA), bank statements, tax returns and W-2 forms, the DD Form 214 for veterans who have left the military, and a variety of standard VA documents. If you need assistance with obtaining these documents, please contact us below.
VA Occupancy: The VA also has specific requirements for occupancy status. Simply put, you must use the home as your primary residence. You cannot use this program to finance the purchase of an investment or vacation property.
VA Loan Appraisal: Just like any other home loan program, the Department of Veterans Affairs requires all homes being purchased with a VA loan to undergo a property appraisal. This is when a licensed appraiser evaluates the home to determine how much it is worth in the current market. Generally speaking, the house must be worth the amount you have agreed to pay for it, and it cannot exceed the VA loan limit for the county in which it is located. The house “must be adequate collateral for the requested loan,” according to the Department. Contact us to discuss the VA loan amount limits in your county.
Certificate of Eligibility or COE: Borrowers who wish to use a VA loan to buy a house must first obtain a Certificate of Eligibility (COE). This document is issued by the Department of Veterans Affairs. The borrower must then present the COE to the lender when applying for the loan. The COE essentially says that the individual meets the Department’s minimum eligibility requirements.
To obtain a COE, applicants must provide evidence of their eligibility. This can be done in several ways:
- Veterans who have separated from the military can provide a DD Form 214. It must show the character of service and the reason for separation.
- Active-duty military personnel, National Guard members, and reservists can provide a statement of service signed by the personnel office (typically) or the unit commander.
- Discharged members of the National Guard who have never been in active service can provide NGB Form 22 or 23.
- Discharged members of the Selected Reserve who have never been in active service can provide a copy of the latest annual retirement points statement and evidence of honorable service.
- Call us today, we are always happy to help.
This great choice for many Tennessee first time due to the low 3.5% down payment. The FHA mortgage provides several benefits, keeping in mind the budget difficulties of many homeowners who are considering purchasing their first home. Compared to most traditional mortgage loans, the FHA mortgage loan facilitates the process for the applicant.
Besides that the FHA home loan consists of a very low down payment, which makes it a lot easier for homeowners that may have problems saving for the large down payment necessary by more common conventional loans. What are the most important advantages of choosing an FHA loan in Tennessee?
- Secure fixed loan interest rates – One of the big advantages of the FHA loan is the benefit of having a fixed 15 or 30 year interest rate. In comparison to other regular loans in which the loan interest rates change, the rate remains the same for the total length of the loan. Because of this fixed rate, the consumer can budget their predetermined monthly installment ahead of time.
- Low down 3.5% payment – The Federal government insures FHA loans, therefore the borrower has very minimal charges in the process. FHA mortgages require a minimum 3.5% financial commitment from the applicant. The loan does allow for the home seller to pay for all closing costs, up to 6% which is frequently enough to take care of almost any property sale.
- Liberal qualifying guidelines – Pre-qualifying for a Tennessee FHA home loan is rather straightforward. Because it’s the FHA that insures your home loan, the creditors and lending institutions make it feasible for anybody to qualify when they meet the base requirements. The primary components of qualifying are the history of credit, earnings and employment history.
- NO cash reserves required – In contrast to most conventional home loan programs, Tennessee’s FHA home loan is a very tempting option for first-time homeowners who have little savings in the bank.
- Like USDA and VA, the home seller can pay the buyers closing costs up to 6%.
Tennessee first-time buyers should know what to expect before starting the FHA mortgage loan application process. Being prepared will always improve your chances of successfully getting your loan approved. Here we list a few steps and some things to consider.
In advance of application:
- Debt-to-income ratio: Careful study needs to be done at this point. Mortgage lenders differ on precise amounts, but a financial debt load that is greater than 41 to 48% is high risk for an FHA loan. You will need 2 years of continual employment with no unexplained breaks in job history.
- Credit History: It is generally the small issues that may damage your consumer credit. Check your income source, and creditworthiness, together with rent history which may show up on a credit score. Get everything taken care of and work towards a spotless record.
- Credit ratings: FICO scores of 620 or better is required for the FHA loan for most lenders and banks. If you have had a bankruptcy or foreclosure, you will have to have maintained a perfect credit score since then (4 years and 5 years respectively) regardless of recent creditworthiness.
FHA Mortgage Application:
- Fill out the “Information Request” form at the top of this page and let us know your requirements. It will allow the local FHA mortgage professional to call you to discuss your primary goal. Afterward, a full mortgage application will need to be completed that details everything about you, the borrower, which is used for determining whether you are qualified for a mortgage loan or otherwise. The interest rate and terms of the loan will also be identified largely by the data in your loan application form, credit scores, etc.
- In the event the application is pre-approved, you will get the disclosure records which are essentially initial loan documents that have all the details in connection with terms and conditions, loan rates, cost and mortgage payments of the loan.
- This has to be agreed upon and returned along with documents such as your bank account statements, IDs, personal references, etc., for validation purposes. Usually, these documents are prepared before the loan application is submitted to the mortgage underwriter.
- The assigned loan processor double checks all validating papers and may request absent documentation from the borrower if needed.
- When completed, the documents are sent to the underwriter.
- The underwriter will be sending a “conditions list” of any missing documents to the purchaser.
- After the buyer completes the requested items on the list, it is returned to the mortgage lender for final authorization. A closing date is then scheduled.
- Notice: When you are in contract on a residence, the entire loan closing process takes roughly 3-4 weeks.
Buyers will find the FHA Q&A here helpful.
We serve home buyers across the nation, including Tennessee residents: Memphis, Clarksville, Johnson City, Collierville, Nashville, Murfreesboro, Bartlett, Cleveland, Knoxville, Jackson, Hendersonville, Smyrna, Chattanooga, Franklin, Kingsport, Germantown
Please reach out to us today by calling 800-743-7556 or just submit the quick Info Request Form on the right side of this page. Mobile users will find the short info request icon at the bottom.