U.S. Government-Backed Home Loan Programs

Did you know that the U.S. government wants to make home ownership a reality for you and for everyone? There are loan programs to help potential home buyers that might otherwise not be able to afford a home, or even a down payment for a home. Before we get into the details of government-backed mortgages, you must understand that the federal government does NOT offer "free money" or grants to help you buy a home! Instead, they help make loans possible for more people by insuring the loan. This insurance of the mortgage protects the lender, which is typically a bank or mortgage company, and gives them more confidence in offering mortgages to people that may not have a high income or big down payment.

Example of how government-backed loans work

Here's an example of how the government-backed mortgage works from a lender's point of view: Bobby and Sue earn a low income, but are able to qualify for a government-backed mortgage (like an FHA loan) offered by Bank ABC. After a while, Bobby and Sue stop making payments and default on the loan. Bank ABC can go to the government and make a claim on the government-backed insurance to get the money back that they loaned to Bobby and Sue. As you can see from this example, Bank ABC was willing to offer a mortgage to Bobby and Sue because the loan was insured by the federal government. If not for this insurance, Bank ABC probably would never have approved a mortgage for Bobby and Sue due to their low income.

FHA Loans - The big daddy of government loan programs

FHA stands for "Federal Housing Administration." The FHA is a government agency that insures loans so that lenders can offer borrowers like you lower down payment requirements and closing costs. These types of mortgages are called FHA-backed loans. FHA-backed loans also have very fair credit score requirements which makes it possible for those that don't have a well-established credit history to qualify for a mortgage. In general, your credit score doesn't need to be perfect, but there are limits on the loan amount that FHA will insure.

Benefits of FHA Loans:

As described on the FHA government website itself, "FHA loans have been helping people become homeowners since 1934", by insuring loans so that the lender can offer you a better deal:

• Low down payments
• Low closing costs
• Easy credit qualifying

Learn about FHA Loans

VA Loans - Helping Veterans and Servicemembers

The U.S. Department of Veterans Affairs (VA) helps veterans, surviving spouses, and service members with home loans. The VA home loan guaranty benefit is a really nice benefit that Veterans can utilize multiple times. Private lenders like banks and mortgage companies offer VA home loans, of which a portion is guaranteed by the Department of Veterans Affairs (VA). Because of this guaranty, the lender is able to offer really good loan terms. For example, little or no down payment required, low interest rates, and limited closing costs are just some of the perks of a VA loan.

Benefits of VA Loans:

As described on the VA.gov website itself, "VA helps Veterans, Servicemembers, and eligible surviving spouses become homeowners. As part of our mission to serve you, we provide a home loan guaranty benefit and other housing-related programs to help you buy, build, repair, retain, or adapt a home for your own personal occupancy." :

• No downpayment required (Lenders may require downpayments for some borrowers using the VA home loan guaranty, but VA does not require a downpayment)
• Competitively low interest rates
• Limited closing costs
• No need for Private Mortgage Insurance (PMI)
• The VA home loan is a lifetime benefit. You can use the guaranty multiple times

Learn about VA Loans

USDA Loans - Rural home buyer assistance programs

The US Department of Agriculture (USDA) Rural Development offers qualifying individuals and families the opportunity to purchase or build a new single family home with no money down, to repair their existing home, or to refinance their current mortgage under certain qualifying circumstances.

Benefits of USDA Loans:

As described on the USDA government website itself, "Well built, affordable housing is essential to the vitality of communities in rural America. Rural Development's Single Family Housing Programs give families and individuals the opportunity to buy, build, or repair affordable homes located in rural America":

• Purchase or build with no money down in eligible rural areas
• Low or Very-Low Income available
• Grants possible for age 62 and over (for home repair loans and grants)
• Typically 33-year term with payment assistance available

Learn about USDA Loans