What a mortgage loan is?

In order 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 mortgage loan?

Government-backed loans are mortgage loans that are insured by government agencies. Typically, there are three types of government-backed mortgages that buyers can take advantage of. Sometimes, these programs can make it easier for homebuyers to qualify for a mortgage in the future.

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 FHA loans.

Veterans Affairs (VA) Loans

The Department of Veterans Affairs has mortgage programs specifically for military personnel, veterans, and surviving spouses of those who have so valiantly served our country. With a VA 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. This means 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% 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. Read more on USDA eligibility.

  • 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. However, 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 don’t have to pay out of pocket.
  • USDA Rates: Rates of USDA loans are usually lower than those of typical conventional home loans.

Learn More about USDA 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.

Learn more about FHA Loan Limits for 2023!

What are the benefits of government-backed mortgages?

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 lower down payments
  • Build equity and credit
  • More accessible to those who may not in a perfect position to buy

How do I know if my mortgage is 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 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.

Connect With A Loan Officer To Learn More