Last Updated on May 26, 2021 by Maggie Looker
Buying a home typically requires approval for a home mortgage loan. There are several mortgage programs available to law enforcement professionals. But, knowing which is best for you can take a lot of research. We outline the most common home mortgage programs for law enforcement, and how Homes for Heroes can help you save even more money when buying a home.
But, before we get too deep into the types of mortgage loans available to law enforcement, we first recommend determining how much house you can afford. More than likely, you’ll qualify for more than one type of home loan. Knowing what you can afford to pay each month can help you determine which type of mortgage loan could be best for you.
This mortgage calculator is also a great tool to estimate your monthly mortgage payment. Once you know what you can afford, we can cover the four main types of home loans for law enforcement: Conventional loan, FHA loan, USDA loans, and VA loan.
As a law enforcement employee, chances are you qualify for more than one type of mortgage. Our Homes for Heroes mortgage specialists will work with you and your finances to determine which home loan type you qualify for. Sign up now to get more information from our specialists.
Conventional Loans for Law Enforcement
Conventional loans are the most popular home loan; in fact, more than 60% of mortgages are conventional. They are widely used because they are less restrictive with what type of home you can buy, they have fewer required fees than government-backed loans, and the terms are easier to qualify for. These characteristics make this a popular home loan for law enforcement.
Conventional home loans are not backed by the federal government like the other loan types we will cover. Instead, conventional loans follow guidelines set by two private mortgage agencies, Freddie Mac and Fannie Mae. This means they have different rules when it comes to lending money, and therefore can be more broad with their lending requirements.
Benefits of a Conventional Loan:
- Interest rate depends on your credit. The better your credit, the lower your rate will be.
- You are not charged any upfront fees to get the loan. There are still fees to be paid at closing, but those are not for the loan itself.
- You can get a conventional loan for an amount higher than most government-backed loans.
- Law Enforcement officials can pay as low as 3% for their down payment with conventional loans.
Disadvantages of a Conventional Loan:
- Generally requires a credit score of 620 or higher to qualify.
- If your down payment is lower than 20%, you’ll need to pay Private Mortgage Insurance (PMI) until you’ve paid 20% of the home’s value back. If your home’s value goes up as you make payments, this can take even longer.
- Guidelines can vary from lender to lender, because they are backed by private institutions that can set their own terms rather than the government.
Conventional home loans for law enforcement typically come with 30-year or 15-year duration terms. That means your total loan amount will be divided into payments for either 15 or 30 years worth of payments. When it comes to the interest rate options on these loans, there are two main types: adjustable-rate and fixed-rate.
Adjustable-Rate Mortgage (ARM)
With an adjustable-rate mortgage (ARM), the interest rate you pay will change after a fixed period of time. Initially, your interest rate will remain the same for the first few years of the loan. The exact length of time will vary between lenders. This initial interest rate is referred to as the “fixed-rate period.” The interest rate during this fixed-rate period is almost always lower than entirely fixed-rate mortgage interest rates. This makes adjustable-rate mortgages attractive to buyers who don’t plan to stay in their house for the long-term.
After the fixed-rate period, your interest rate will adjust based on the current market interest rate. This means your interest rate could increase or decrease based on the overall financial market. The rate will continue to adjust based on a schedule predetermined in your loan agreement.
However, the changing interest rate is why ARMs can be risky to buyers and make budgeting difficult. One month your payment could be $1400, the next it could be $1800. Your mortgage lender will walk you through all the dates and terms for this home loan if it’s the best option for you.
With a fixed-rate mortgage, your interest rate will stay the same over the life of the loan. This makes it much easier to plan your monthly budget. Most people choose a fixed-rate mortgage.
However, if you don’t plan on being in your home long term, an ARM might be a better option because they generally start with lower interest rates. Depending on what the interest rate is when you secure your mortgage, this can be good or bad. If you have a higher interest rate, you’ll be paying that rate for the life of the loan unless you refinance, which has costs associated with it. But, if you lock in a rate while they are low, chances are you will want to keep that rate for the entire loan.
FHA Loan for Law Enforcement
FHA Loans are government-backed loans, issued by the Federal Housing Administration. A government-backed loan means that if a homeowner can’t continue to pay their loan, the house becomes property of the government, rather than a bank or back on the market immediately. This applies for all the remaining types of loan we’ll cover, which are all government-backed.
FHA loans help increase homeownership by reducing the required credit score to qualify for mortgages. Those in law enforcement and those with lower credit scores also can qualify for these mortgages, thanks to Mortgage Insurance Premiums (MIP) and the Upfront Funding Fee. Their low down payment requirement is also an attractive benefit of these loans, and is often seen as a form of down payment assistance. FHA loans are popular with many first-time home buyers for these reasons.
Benefits of a FHA Loan:
- Law enforcement officials with a credit score of 580 or higher can qualify for a FHA loan. Scores as low as 500 can be accepted depending on the lender, although the down payment will need to be higher.
- Home buyers can put down as little as 3.5% for a down payment. If buyers have a credit score of 500-579 they may still qualify for a FHA home loan, if they are able to put down up to 10% for a down payment.
- Closing costs can sometimes be rolled into the mortgage payment, meaning you’ll need a smaller lump sum of money at closing.
Disadvantages of an FHA Loan:
- Law enforcement officials who get a FHA home loan will need to pay an Upfront Funding Fee through the closing process. This fee is 2.25% of the total financed amount. Usually, this can be rolled into your mortgage, or you can pay it at your closing. The Upfront Funding Fee basically is monetary insurance to the government that makes it so you are more likely to pay back your loan.
- All FHA loans must include Mortgage Insurance Premiums (MIP) for the life of the loan. MIP protects the mortgage lender in case you are unable to pay the loan back. Unlinke with conventional loans, you can not refinance and get rid of MIP, unless you refinance into a different type of loan. MIP is a big reason why home buyers with lower credit scores and less cash for a down payment still have the ability to purchase a house.
Generally, FHA home loans for law enforcement officials will cost more money over the life of the mortgage versus a conventional loan, VA loan or USDA loan due to the higher interest rate and MIP costs. However, it still makes homeownership possible for someone with lower down payment funds or less than stellar credit scores.
USDA Loans for Law Enforcement
Although they’re named after the U.S. Department of Agriculture, USDA loans are not just for farmers. USDA loans are intended to revitalize rural areas but pushing people to buy homes in rural areas. But, many smaller towns, and even some suburbs, qualify as rural with these home loans. These mortgages for law enforcement officers can be very beneficial, as there is demand for law enforcement in rural regions nationwide. If you already live in or are moving to a more rural area anyways, take advantage of these loans!
USDA Loan Eligibility
USDA loans are available for properties located in designated rural areas that meet all of the eligibility requirements. They have the most stipulations of the loans we’ll cover, and that’s because their benefits are so great. One of the requirements is that your household can not make more than a certain amount per year based on the number of adults in the household. While you might not consider your salary to be low income, it’s worth looking at the income requirements. You might be surprised how much your family can make and still be eligible for USDA loans. To be eligible for a USDA home loan, you must meet these requirements:
- You must meet income guidelines, which vary by state.
- Home buyers must personally occupy the home as their primary residence.
- Home buyers must be a U.S. Citizen, U.S. non-citizen national or Qualified Alien.
- You must have ability to take on the loan obligation.
- Must be eligible for participation in federal programs.
- Demonstrate the willingness to meet credit obligations in a timely manner.
Benefits of USDA Loans:
- There is no down payment requirement with USDA home loans.
- The loan terms offer competitive interest rates.
- USDA loans have no minimum credit score to qualify, and credit guidelines are flexible. However, most lenders prefer a credit score of 640 or higher. This will vary by lender.
- Available in common fixed-rate terms like 30-year and 15-year loans.
Disadvantages of USDA Loans:
- There is an Upfront Funding Fee, up to 1% of the total financed amount, paid when you close on the loan. Typically this can be rolled into your mortgage payment.
- There is an annual fee, which is 0.35% of the loan. This can also be rolled into your monthly mortgage payments.
- Must meet all the above USDA loan requirements to qualify.
- The home you wish to purchase must pass a strict home inspection. This is to ensure the home is suitable for living, making it less likely you will not pay back the loan.
While the USDA loan has a lot of boxes to check to become eligible, if you can secure one, you’ll save thousands without a required down payment.
Of all the types of home loans, VA loans are only available to active and veteran military members and their families. Backed by the U.S. Department of Veterans Affairs, these loans offer great advantages to those who are serving, or who have served in the U.S. Armed Forces. It’s also very common for military veterans to turn to law enforcement as a civilian career.
To be approved for a VA loan, you will need to show your lender a Certificate of Eligibility (COE). This shows your lender that the VA has verified that you meet the requirements of obtaining a VA loan. The primary criteria to qualify is that you must have served in the US military for 90 days of active duty during war time, or 181 days of active duty during peace-time, or you are a surviving spouse of a military member who has also not remarried.
Benefits of a VA Loan:
- No down payment is required, as long as the sale price doesn’t exceed the appraised value.
- There are no Private Mortgage Insurance (PMI) premiums.
- There is a limit on how much you can be charged in closing costs.
- Closing costs are allowed to be covered by the seller, should your offer state that.
- Interest rates are almost always lower than conventional loans and FHA loans.
- Your lender cannot charge a penalty if the VA loan is paid off early.
- You do not need to be a first-time home buyer to use a VA loan.
Disadvantages of a VA Loan:
- You must meet VA loan requirements to qualify.
- VA charges a funding fee to cover operating costs. However, this fee is usually rolled into the home purchase price.
- Your lender may have additional requirements a borrower must meet to take out a VA loan. Because the VA only guarantees 25% of these loans, lenders will typically have additional requirements. Be sure to discuss any additional requirements with your lender.
Down Payment Assistance
Even with these great home loan options, most still require some form of a down payment. This can be thousands of dollars you need to pay at closing, and saving that much money can be hard. But, there is down payment assistance for law enforcement workers that can be combined with these loans.
Between federal funding, national programs, first time homebuyer classes, and city and state initiatives, there are all kinds of down payment programs out there for law enforcement professionals. You can also combine Hero Rewards with the loans we’ve talked about and any down payment assistance you qualify for. Hero Rewards are our way of saying thank you for being a law enforcement hero.
When you buy, sell, or refinance a home with a Homes for Heroes affiliate agent, we’ll give you a check back after your closing worth 0.7% of your purchase price. That means that if you buy a home for $250,000, we’ll give you Hero Rewards of $1,750. You can use the money to buy new items for your home, cover moving expenses, or anything else you’d like.
There is no cost to you to use Homes for Heroes for your real estate transaction. There is also no extra paperwork for you, and we automatically match you with a real estate affiliate and mortgage specialist in your local area to work with, giving you time back on your real estate agent search. They will be with you every step of the way, taking the time to explain the process and answer any and all of your questions.
No matter what type of mortgage loan you choose, Homes for Heroes can save those in law enforcement money on your next home purchase. Register today for more information and get started with your home buying process.