Teacher Home Loans | Ways to Save Money on Your Next Home
Last Updated on April 17, 2023 by Luke Feldbrugge
Teacher home loans come in all shapes and sizes, and many can save you money up front or over the long term. There are at least four federal government programs that help teachers find and buy a home, and many other private ones. You give a lot to your community, and it makes sense for us to give back by making it easier for you to find, afford and move into a new home. What you can save with the teacher home loans and programs outlined in this post is only the beginning. Homes for Heroes offers teachers more savings on top of it!
Let’s take a look at the government-sponsored teacher home loans and programs first, because there are definite financial benefits for eligible teachers.
Federal Home Loans for Teachers
#1 FHA Good Neighbor Next Door
This is a national program from the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration. One of its goals is to make the home purchase more affordable for teachers (plus firefighters, law enforcement officers, EMS workers).
The houses available to Good Neighbor candidates are reduced in price by 50%. Yes, you read that right – half off for these homes.
So what’s the catch? The homes in the Good Neighbor Next Door program are in revitalization areas as identified by HUD. That means they are in a targeted area where:
- The household income is lower than average.
- Homeownership is lower than the nearby areas.
- FHA mortgage foreclosure activity is higher than the surrounding community.
These neighborhoods need both economic and community development, and one way to do that is make foreclosed properties available to heroes at a deep discount. If you get one of these homes, you will agree to live there for at least three years.
With the Good Neighbor program the properties that are going up for sale are offered first to the Good Neighbor candidates– for 7 days, before they go on the general market.
We highlight this program first because if you’re willing to work within the program’s guidelines, 50 percent off a home is a great deal. And as we noted, there would be additional savings from Homes for Heroes when you choose to close on a home with our local real estate and mortgage specialists. Sign up today to speak with a member of our team and learn more.
#2 FHA Teacher Home Loans
Another housing benefit sponsored by the Federal Housing Administration (FHA) is the FHA loan program. This is a government-backed loan guarantee, which means they stand behind you and pay the lender if you default. But you still get the actual loan, the money to purchase your new home, from a private lender. So when the government stands behind the loan, it reduces the risk for the mortgage lender, and that helps to get your loan approved.
The financial benefits of the loan guarantee from the FHA are:
- The down payment for the FHA guarantee is very low, set at a minimum of 3.5%.
- You need a credit score of 580 to qualify for the FHA loan and 3.5% down payment. However, if your credit score is only 500-579, you can still get the FHA loan guarantee but you will need a down payment of at least 10%.
- Closing costs can be rolled into the mortgage payment so you will need less money up front. This is especially helpful for a first time home buyer teacher if you do not have a lot of money to cover closing costs.
There are two additional costs to consider when examining the FHA loan guarantees.
- The Upfront Funding Fee – When you apply for a FHA home loan, you will be charged this fee at closing. You can roll into your mortgage or pay it at closing.
- The Mortgage Insurance Premiums (MIP) – This is another annual fee for the protection for the mortgage lender. This insurance runs for the life of your loan.
The strength of the FHA loan program is that it makes affordable housing easier for a first time home buyer teacher to qualify for a loan, even if you have a lower credit score.
#3 USDA Teacher Home Loans
Even though USDA loans come from the Agriculture Department, they are not just for farmers. They are loan guarantees designed to encourage rural community development. The reason you may want to consider this loan option is because 97% of the U.S. is considered “rural” – small towns, outlying regions of metropolitan areas and more. Since teachers are needed everywhere, the options for rural living may be very attractive if you are not committed to city living. And if you are currently renting in a small town or rural area, a USDA loan guarantee could be a good teacher home loan for you once you’re ready to buy.
Here are some of the benefits of USDA loans:
- Unlike the FHA loan, there is zero down payment for USDA loan guarantees.
- They have lower interest rates than conventional mortgage loans.
- There are no minimum credit scores. Private lenders will have credit score requirements they are legally required to follow, and you can discuss these requirements with your lender. The U.S. Agriculture Department who offers the USDA loan guarantee does not get involved.
As a teacher who may be considering the USDA government-backed loan, please take into account the following fees:
- The Guarantee Fee is a one-time charge, ranging from 0.25% to 1% of the total financed home loan amount. It’s paid at closing, but it can be folded into your mortgage payment.
- The Annual Fee is a payment that can be rolled into your monthly mortgage payment, but it’s for the life of the loan.
While the USDA doesn’t require an inspection, it does require an appraisal. Your loan officer or originator will probably require the inspection, and that’s good for you. The appraisal protects the lender, but the inspection protects you, the new homeowner. The inspection will tell you if the home is safe to live in for you and your family.
In addition to promoting rural growth and development, the USDA loan program is designed to encourage homeownership for low to moderate income families in rural areas. Their definition of low-to-moderate varies by state.
#4: VA Loans
If you are a teacher who can get a VA loan – meaning you are a U.S. military veteran who is now a teacher – do it. The benefits of a VA loan guarantee eclipses the other programs mentioned above. The big three advantages are:
- NO down payment
- NO private mortgage insurance (PMI)
- Lower interest rates
There are more benefits to those who served in the military, or those in active service, but the list is quite long. The VA loan program is also a lifetime benefit, so you can use it for your next home and the home after that if you qualify.
The primary criteria to qualify is you must have served in the US military for 90 days of active duty during wartime, or 181 days of active duty during peacetime. For Reservists and National Guard, it’s six years of service unless you were mobilized for active duty for at least 90 days.
It is also available to a surviving spouse of a military service member or veteran.
HELPER Act: Similar to a VA Loan Program for Community Heroes
One proposed program to keep an eye on is called the HELPER Act, and it is currently a bill being considered by Congress. The title stands for: Homes for Every Local Protector, Educator and Responder. It is being compared to VA loans in that it provides zero-down-payment loan insurance for school employees and classroom teachers. It would be a huge step forward for teacher home loans and an outstanding program with great benefits.
Under this act, teachers would also be able to skip paying monthly mortgage insurance premiums (though there would be one up front 3.6% mortgage insurance premium).
The bill has bi-partisan support in both the House and Senate, and President Biden also supports it. If you are a teacher, this is a potential bright spot in an otherwise tough housing market.
Conventional loans are sort of the default standard for mortgages. More than half of all home loans are a conventional mortgage loan, and they are issued by private lenders, mortgage lenders and banks. There are fewer required fees, but the requirements to qualify are rather rigorous.
You will have to prove you can afford the loan, have the income to make your payments and have a good credit history. They will have a minimum credit score and a maximum debt-to-income ratio (DTI). You will need a down payment that could be as much as 20%. If you cannot afford 20% down, you will need to pay private mortgage insurance for at least the first few years of the loan. You will also be paying the current interest rate for this standard mortgage.
Conventional loans follow guidelines set by two private agencies, Freddie Mac and Fannie Mae.
Save on Teacher Home Loans with Homes for Heroes
Our teachers save an average of $6,000 when they buy and sell a home, and an average of $3,000 if they only buy, or only sell a home using our local real estate and mortgage specialists.
Simply sign up to speak with a member of our team and we will put you in touch with our local professionals in your area, who have committed their business to serving teacher heroes like you; including a:
- Licensed real estate agent
- Mortgage loan officer/originator
- Home inspector
- Title company
From there, we’ll work with you throughout the home buying and/or selling process, from the home search to the loan process all the way to closing.
IN ADDITION: Awarding Grants to Support Teachers
We don’t just help teachers, educators, and other heroes with their housing transactions. We also have the Homes for Heroes Foundation that gives assistance to heroes across the country in dire need when it comes to housing or emergency aid. Here are two recent foundation grants awarded in 2022.
Let Homes for Heroes help you with your home buying/selling needs and save you significant money in the process. Simply sign up to speak with a member of our team to get started today. We would be honored to serve you, and thank you for your service.