Being a teacher is a rewarding job in that it offers the chance to help young minds grow. Often teachers spend more day time with children compared to anyone else in their lives. Their role in society is essential, but in many states, the salaries place teachers in a low to moderate income range. Therefore, buying a home may seem challenging (especially when teachers have the burden of student loan debt). Fortunately, we offer a multitude of home loans which provide excellent solutions for teachers including:
- Down payment assistance
- Flexible guidelines
- Fixed interest rates
- Affordable payments
We encourage teachers to understand the affordable home loan options available today. Many do not realize that so many solutions exist for buying a home with potentially no down payment. Some strategies even allow a buyer to bring no cash to closing.
Down Payment Assistance for Teachers
So, what is down payment assistance (DPA), and when should a buyer use it?
First of all, there are no money down purchase loans available. Teachers may qualify for and choose one of these programs such as VA loans or USDA loans. With the combination of borrowing 100% of the sales price plus possibly the seller paying closing costs, a buyer may not need DPA.
Using Down Payment Assistance With VA and USDA Loans
One may wonder, “Why use DPA when I can borrow the full purchase price?” Good question! Well, sometimes the seller may not be able to pay the buyer’s closing costs. So, combining a VA or USDA loan (which covers the purchase price) with down payment assistance (could be used to cover closing costs), the result could allow a buyer to bring zero cash to closing.
Another benefit of DPA or grants is that the first mortgage could be reduced by the amount of the DPA/Grant. So, a buyer is basically replacing approximately $3,000, $6,000, maybe $8,000 of the first mortgage with a low rate or interest free assistance program. Pretty sweet deal! Although, an important point to remember is that sometimes the DPA makes the first mortgage rate higher. This is an area where an experienced mortgage loan officer will help weigh the benefits of each option.
Keep in mind; not all DPA programs allow VA and USDA as first mortgage options. Both the first mortgage and DPA must be closed by the same lender to receive down payment assistance. If your lender does not offer DPA solutions, contact us.
FHA Down Payment Assistance for Teachers
A more popular home loan choice is combining an FHA first mortgage with down payment assistance. The obvious reason is that FHA loans require a 3.5% minimum down payment. FHA loans offer very flexible guidelines to help more teachers qualify to buy a home, but even this low down payment may be a struggle for some teachers purchasing a home. Maybe the buyer has the funds but would instead use it for some home improvements, moving expenses, or keep in savings. That’s why DPA matches up best with an FHA loan. Down payment assistance funds bridge the gap between the sales price and home loan.
In addition to the flexibility of an FHA loan, down payment assistance offered in each state provide other benefits. The structure of each varies among state housing programs. For instance, North Carolina residents have access to $8,000 at zero interest and no payment. Typically, this covers a down payment and some closing costs. South Carolina down payment assistance includes $6,000 at a low rate of 2% for ten years. Virginia not only offers DPA as they also have a grant program. Both are available through VHDA. The level of benefits vary, and another Virginia option even includes a conventional loan with no mortgage insurance. This is an excellent way of lowering a house payment.
HomeReady and Home Possible – Conventional Loan Options For Teachers
In the above case, FHA and USDA are conservative, but two conventional, 3% down payment loan programs allow buyers to qualify based on their actual IBR payment. Fannie Mae will even allow $0 if that’s your IBR payment. Freddie Mac will only go to $1. Another advantage of HomeReady and Home Possible include a reduced mortgage insurance premium. First, these do not require an up-front fee like FHA’s 1.75% of the loan amount, financed funding fee. Furthermore, buyers with good credit scores may qualify for monthly mortgage insurance that is cheaper than FHA. The result is potentially lower monthly payments and lower closing costs.
Teacher Home Loans with Student Loan Debt
Although some teachers are fortunate enough to have no student loan debt or have funded their education through a state program that paid for college, many experience the burden of student loan debt. With college bills very often surpassing $20,000 per year, student loan debt can easily surpass $50,000, $80,000, or $100,000! Often teachers qualify for income-based repayment student loans (IBR), which means required payments are much lower than the actual terms. Believe it or not, a $100,000 balance may only be $100 and possibly even $0!
Buying a home with IBR student loans can be tricky unless you have an experienced loan officer familiar with student loan mortgage guidelines. Knowing the different guidelines could save a purchase. For instance, FHA loans require lenders to calculate a payment equal to 1% of the outstanding student loan balances. 1% of $100,000 means qualifying for a house using a $1000 student loan payment. That’s pretty difficult for most. USDA treats this scenario the same way.
Teacher Home Loans Summary
We have mentioned several financing options that create a more accessible path for teachers to achieve homeownership. Whether it is a no money down USDA or VA loan, 3% down payment financing through Fannie Mae or Freddie Mac, FHA loans, or down payment assistance, there is often solution which matches well for a teacher. Because of the many factors that go into choosing the right mortgage fit, a thorough discussion of a teacher’s scenario and goals is key right up-front.
Today’s home loans provide solutions to bust through potential roadblocks such as higher debt to income ratio, minimal savings, credit issues, and increasing sales prices. We would love to speak to you and provide the service you deserve when it comes to buying or refinancing a home.