For many people a home is more than shelter or a good investment, it’s a dream come true. Owning a home is a major step that can lead to financial security. Along with homeownership comes benefits to the homeowner, but there are also a number of challenges. The generally accepted definition of affordability is for a household to pay no more than 30 percent of its annual income on housing. Families who pay more than 30 percent of their income for housing are considered cost burdened.

Lenders use three factors to qualify a person for a loan: capacity, capital and character. Capacity is the present and future ability to meet payment obligations. Capital refers to assets that can be used for collateral. Character refers to credit history.

Most mortgages are either for 15- or 30-year terms. The mortgage payment for a 30-year mortgage is lower and generally has a higher interest rate than a 15-year mortgage. Over the life of a 30-year mortgage, a borrower pays more interest than with a 15-year mortgage. Either mortgage may have a fixed or a variable interest rate. With a fixed rate loan the interest rate stays the same for the term of the loan. A variable rate loan can increase or decrease during the term of the loan.

VA Loans
First-time homebuyers will find a number of different programs available. The Department of Veterans Administration (VA) guaranteed loans are made by private lenders such as banks to eligible veterans for the purchase of a home. These loans often don’t require a down payment and frequently offer lower interest rates than ordinarily available with other kinds of loans.

USDA Rural Housing Services
The USDA Rural Housing Services includes programs for people interested in buying or renovating a home. The Single Family Housing Program provides home ownership opportunities to low- and moderate-income rural families through several loan, grant and guarantee programs. The program also makes funding available to individuals to finance vital improvements necessary to make their homes decent, safe and sanitary.

FHA Loans
The Federal Housing Administration (FHA) insured loans provide mortgage insurance to purchase or refinance a principal residence. The mortgage loan is funded by a lending institution, such as a mortgage company or bank, and the mortgage is insured by the U.S. Department of Housing and Urban Development (HUD). The most common FHA loan is the 203(b) which features a low down payment, flexible qualifying guidelines, limited lender fees and maximum loan amounts.

Fannie Mae
The Federal National Mortgage Association, also known as Fannie Mae, provides products and services that make it possible for low, moderate and middle- income families to buy homes of their own. Fannie Mae does not lend money directly to homebuyers. Instead, Fannie Mae works with lenders to make sure that mortgage funds are available to citizens
in their communities.

Prospective homebuyers can ask their lender or local Cooperative Extension Center about homebuyer assistance programs. Local real estate agents are another source of information regarding financing options.