What is a mortgage loan?

Are you considering purchasing a home? A mortgage loan is a financial tool that can make your dream of homeownership a reality. With government mortgage loans and government home loans, you have access to various programs and assistance to help you secure the funding you need.

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These loans are offered by approved lenders who work closely with government agencies to provide favorable terms and conditions. Whether you’re a first-time buyer or looking to upgrade, a mortgage loan allows you to borrow the necessary funds to buy a home, making it an essential resource for aspiring homeowners.

To understand government backed loans, it’s important to understand a mortgage loan. A mortgage loan is a secured type of loan for buying a house. Therefore, a financial institution lends money to a borrower to help them purchase a home if they are unable to pay in cash. Over time, the borrower repays the institution with interest.

What is a government backed loan?

A government backed loan, also known as a government backed mortgage, is a type of loan that is guaranteed by a government agency. These loans are offered by mortgage lenders and are designed to make homeownership more accessible and affordable for individuals and families. Some types of government backed loans that are available include, VA loans, USDA loans, and FHA loans.

VA loans are available for veterans and military personnel. USDA loans are designed for rural homebuyers. FHA loans are backed by the Federal Housing Administration. These loans provide certain benefits and protections to borrowers, such as competitive interest rates, low down payment options, and more lenient qualification criteria.

By offering this guarantee, the government encourages lenders to provide financing to borrowers who may not meet the conventional loan requirements, thereby expanding homeownership opportunities for a broader range of individuals.

See how much you can afford.

Your approval amount will give you an estimate on how much house you can afford.

Which loans are guaranteed by the federal government?

Government loans are usually not applied for directly from the government agency and are applied for through private lenders offering government-backed mortgages. The three most common federally funded loans are VA loans, USDA loans, and Federal Housing Administration (FHA) loans.

Government Loans For Veterans (VA Loans)

The Department of Veterans Affairs has created mortgage programs designed specifically for military personnel, veterans, and surviving spouses of those who have so valiantly served our country. With a veteran home loan, there is no monthly mortgage insurance, and because of this, there are substantial savings over the term of the mortgage. Moreover, these types of loans are assumable, meaning you can give your loan to someone else if they are eligible for a VA loan. This option eliminates the hassle of listing and closing on your home.

  • 100% VA financing with 0% down: You can finance 100% of the loan with no mortgage insurance. This can save you hundreds of dollars per month compared to a Conventional loan.
    • You can also finance 100% with a cash-out refinance.
  • Relaxed Home Eligibility: Home eligibility for a VA loan include stick-built houses, condos, or even manufactured homes.
  • No Loan Amount Caps: Currently, there is no cap on loan amounts, so you could use your VA loan for a jumbo loan amount.*

*As of May 2021. This is dependent on veteran loan entitlement and county loan limits.

Learn More About The VA Home Loan Process!

United States Department of Agriculture (USDA Loans)

USDA loans are backed through the Rural Housing Division of the United States Department of Agriculture. They are available to millions of eligible primary home buyers with low to moderate incomes, or scarce funds for down payments.

  • No Down Payment: Most mortgages require an initial down payment that is paid on closing day. Because of this, many homebuyers say that saving for the down payment was one of the hardest parts of the home-buying process. Since USDA loans require no down payment, purchasing a home with a USDA loan program may be advantageous for those with low down payment funds.
  • Low Credit Score Requirement: USDA’s programs typically require a 600 minimum credit score. Direct Mortgage Loans can lend below 640, but you may need other compensating factors in order to offset the lower credit score. Furthermore, the applicant must prove that they are willing and able to repay their home loan.
  • Low Origination Fee: Borrowers will pay a guaranteed fee of 1% of the total home loan amount. You can finance this fee into the loan so you do not need to pay it out of pocket.
  • USDA Rates: Rates of USDA loans are usually lower than those of typical conventional home loans.

Learn More About USDA Direct Loans!

Federal Housing Agency (FHA Loans)

FHA Loans are governed by the Housing of Urban Development (HUD), which offers flexible guidelines for borrowers with limited down payment funds and an imperfect credit history.

  • Low Down Payments: As little as 3.5% down will work in most instances, and 5% covers most others.
  • Higher Loan Amounts: In some areas, FHA maximums can exceed conventional loan limits.
  • Lower Total Cash to Close: Sellers can help pay closing costs, and borrowers can receive gift money toward their down payments.
  • Streamlined and Cash Out Refinancing: Subsequent refinancing can be far easier and more lenient than with conventional loans.
  • Purchase & Rehab Financing: The FHA 203k loan can be a great option for the purchase of homes needing anything from a quick spruce-up to major remodeling.

FHA 100% Financing

This program provides homebuyers with 100% financing without requiring a down payment. However, closing costs are still required. This is achieved through a combination of a 1st and 2nd mortgage. This DPA program can be used to obtain an FHA loan and the amount of the 2nd mortgage can be up to 3.5% of the sales price or the appraised value, whichever is less. The term for the 2nd mortgage is 10 years.

  • Eligibility: To qualify for the program, you need to have a minimum credit score of 620 and a maximum Debt-to-Income (DTI) ratio of 45%. You must complete a Homebuyer Education course. And the eligible properties for financing are defined by FHA guidelines based on the maximum HUD county limit. The program covers single-family homes, duplexes, manufactured homes, PUDs, townhouses, and condos.

Learn More About FHA Loan Limits!

What are the benefits of government home loans?

The main benefit associated with government-backed home loans is that they’re generally more accessible to those who may not be in a perfect position to buy. Government-insured loans are secured by the government, which eliminates the risk of repayment. These types of loans are a great option for those who may not be approved for a conventional loan.

  • Require a lower down payment.
  • Build equity and credit.
  • More accessible to those who may not be in a perfect position to buy.

How do I know if my mortgage is federally backed by the government?

If you want to find out if your loan is a federally backed mortgage, then there are a few different ways to determine this information. You can either call your mortgage lender or send a written request to your mortgage provider requesting this information.

By law, your lender has an obligation to provide you with the name, address, and telephone number of the person who owns your loan, to the best of their knowledge. Furthermore, use the Freddie Mac or Fannie Mae lookup tool online to see if your mortgage is backed by the government.

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