What a mortgage loan is?
Before we go over government backed mortgage loans, let’s define what a mortgage loan is. A mortgage loan is a secured type of loan for buying a house. A financial institution lends the borrower money to purchase a home if they are unable to pay for the home in cash. Over a period of time, the borrower pays the financial institution back with interest added.
Government Backed Mortgage Loans
There are many types of mortgage loans (VA, investment, 203K, etc.). Frequently, mortgage loans are secured by the federal government- these are known as government backed mortgage loans. The three most common federally funded loans are VA loans, USDA loans, and FHA loans.
VA loans are specifically for those who meet certain eligibility requirements. The Department of Veterans Affairs guarantees a portion of these loans. To see if you meet the VA loan eligibility requirements, read our blog on VA Loans: Buying a Home as a Veteran, or review the VA eligibility website. These loans have benefits such as no required down-payment, competitively low interest rates, and no needed private mortgage insurance. Additionally, you can only use this type of loan for a primary household; therefore that you cannot use it for an investment home.
The federal government backs USDA loans, more specifically, through the United States Department of Agriculture. Those purchasing a home is a rural or suburban area may qualify for this type of loan. These loans are only applicable to single-family homes and towns with less than 35,000 residents.
USDA loans do not require a down-payment, however, they do require a minimum credit score of 640 for eligibility. This loan provides lower interest rates and insurance payments. In addition to borrower eligibility, the property must also be eligible based on USDA guidelines. For more information, contact a Loan Officer.
FHA loans, funded by the Federal Housing Agency, are a government-backed loan with the purpose of helping those who do not have the financial profile to qualify for other loans. Consequently, FHA loans are uniquely helpful for first-time homebuyers- the requirements are a 3.5% down-payment, 580 credit score, and 43% debt-to-income ratio.
These are the three most common type of government backed mortgage loans. If one of these options sound like a suitable choice for your home buying needs, then download our app to connect with us and start the process!