Government Loan Programs
There are many different types of Government Loan Programs. Here are the three most popular:
FHA loans
An FHA loan is insured by the Federal Housing Administration, a federal agency within the U.S. Department of Housing and Urban Development (HUD). The FHA does not loan money to borrowers, rather, it provides lenders protection through mortgage insurance (MIP) in case the borrower defaults on his or her loan obligations. Available to all buyers, FHA loan programs are designed to help creditworthy low-income and moderate-income families who do not meet the requirements for conventional loans.
FHA loan programs are particularly beneficial to those buyers with less available cash. The rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans.
Some of the other benefits of FHA financing:
- Only a lower down payment is required than a conventional loan.
- Some closing costs can be financed.
- Lower monthly mortgage insurance premiums and, under certain conditions, automatic cancellation of the premium.
- More flexible underwriting criteria than conventional loans
- FHA limits the amount lenders can charge for some closing cost fees (e.g. the origination fee can be no more than 1% of the mortgage).
- Loans are assumable to qualified buyers.
For current FHA Requirements:
- FICO® score at least 580 = 3.5% down payment.
- FICO® score between 500 and 579 = 10% down payment.
- MIP (Mortgage Insurance Premium ) is required.
- Debt-to-Income Ratio < 43%.
- The home must be the borrower's primary residence.
- Borrowers must have a steady income and proof of employment.
VA Loans
VA guaranteed loans are made by lenders and guaranteed by the U.S. Department of Veteran Affairs (VA) to eligible veterans for the purchase of a home. The guaranty means the lender is protected against loss if you fail to repay the loan. In most cases, no down payment is required on a VA guaranteed loan and the borrower usually receives a lower interest rate than is ordinarily available with other loans.
Other benefits of a VA loan include:
- Negotiable interest rates.
- Closing costs are comparable and sometimes lower - than other financing types.
- No private mortgage insurance requirement.
- Right to prepay loan without penalties
- The Mortgage can be taken over (or assumed) by the buyer when a home is sold.
- Counseling and assistance are available to veteran borrowers having financial difficulty or facing default on their loans.
Although mortgage insurance is not required, the VA charges a funding fee to issue a guarantee to a lender against borrower default on a mortgage. The fee may be paid in cash by the buyer or seller, or it may be financed in the loan amount.
A VA loan can be used to buy a home, build a home and even improve a home with energy-saving features such as solar or heating/cooling systems, water heaters, insulation, weather-stripping/caulking, storm windows/doors, or other energy-efficient improvements approved by the lender and VA.
Veterans can apply for a VA loan with any mortgage lender that participates in the VA home loan program. A Certificate of Eligibility from the VA must be presented to the lender to qualify for the loan.
List of requirements for VA loan financing:
- You have served 90 consecutive days of active service during wartime, or
- You have served 181 days of active service during peacetime, or
- You have 6 years of service in the National Guard or Reserves, or
- You are the spouse of a service member who has died in the line of duty or as a result of a service-related disability.
USDA or Rural Housing Loans
USDA loans are made on properties within a qualifying rural area. Applicants with very low to moderate incomes can qualify for these loans but are still able to afford the housing payments, including the principal, interest, and insurance that are part of the monthly payment amount.
Other benefits of a USDA loan include:
- Affordable to those with lower incomes and good credit histories.
- No required down payment.
- New Manufactured homes are acceptable as long as conditions are met.
- Available in 30-year or 15-year fixed rates.
- Closing costs and lender fees can be rolled into the loan.
- Renovation and Repair costs can be rolled into the loan amount.
The property doesn't have to be a farm or open land to qualify for this type of loan. It just has to be in a qualifying area.
Government Home Loan qualifications:
- Meet income-eligibility (cannot exceed 115% of median household income)
- Agree to personally occupy the dwelling as their primary residence
- Be a U.S. Citizen, U.S. non-citizen national or Qualified Alien