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Government Home Loan Programs

Government Home Loans

Min Credit Score

Down Payment

Max DTI Ratio

Income Limit

No down payment

No down payment

115% of area median income

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What is a Government Home Loan?

There are two types of home loans, conventional and government loans. A conventional loan is guaranteed by private mortgage insurance companies, while a government-backed home loan is guaranteed by the federal government.

Conventional mortgages require a higher down payment and have stricter borrower requirements making them harder to qualify for. Government home loans were created to increase homeownership in America by making it easier to qualify for a mortgage.

A government-backed loan is a mortgage that is guaranteed by the federal government. If a borrower defaults on their mortgage payments, the government agency guaranteeing the loan pays off the principal balance, takes possession of the property, and lists it for sale as a HUD home (The Department of Housing and Urban Development).

Government loans are only available to borrowers who plan to live in the home as their primary residence, investors are not eligible.

Government-Backed Home Loan Programs

FHA Loans

An FHA mortgage loan is guaranteed by the Federal Housing Administration, allowing lenders to lower their minimum borrower requirements making it easier to qualify for an FHA loan than other types of loans.

FHA loans have the lowest credit requirements of any type of mortgage loan requiring a 500 credit score with 10% down, or a 580 credit score with 3.5% down. They are very popular with first-time homebuyers with their low down payment and credit requirements.

Pros and Cons of FHA Loans

Low credit score requirements

Lower loan limits

3.5 percent down payment

Includes an up-front MIP fee

Low interest rates

MIP required for the life of the loan

Easier to qualify for

Strict underwriting requirements

Down payment can be a gift

Higher mortgage insurance costs

Fixed and adjustable-rate loan options

Not available for investment or second properties

Up to 50% Debt-to-income ratio

More restrictions on the types of properties that qualify

They are assumable

Easy to refinance with streamline refinancing

Up to 6% of closing costs can be paid by the seller

USDA Loans

The US Department of Agriculture created the USDA mortgage program to make it easier for low-to-median income homebuyers in rural areas of the country. USDA loans provide 100% financing and allow borrowers to finance closing costs, which means you will need very little money upfront.

USDA loans require a 620 credit score and have an income limit of 115% of the area median income.

USDA Loan Benefits

100% financing

Low mortgage insurance premiums

Low interest rates

No cash reserves required

Up to 50% debt-to-income ratio accepted

No pre-payment penalty

closing costs can be rolled into the loan

VA Loans

VA loans are guaranteed by the Department of Veterans Affairs and offered by private lenders. They do not have a minimum credit score requirement or maximum loan limit. A down payment is not needed with a VA loan and there is no mortgage insurance premium required making them one of the most desirable mortgage programs available today.

12 Benefits of VA Loans

 No down payment

 No mortgage insurance premium (MIP)

 Low credit scores may be approved

 Flexible borrower requirements

 Low interest rates

Lower closing costs

Up to 50% debt-to-income ratio

• VA negotiates with the lender if you are facing foreclosure

 No loan limits

 The seller can pay 6% of closing costs

Lower monthly payment than other loan types

No Prepayment Penalty

FHA 203k Loans

FHA 203k home loans are a type of home rehabilitation loan that is insured by the Federal Housing Administration. 203k loans provide financing to purchase a home, plus additional funds to repair or renovate a property.

Pros and Cons of FHA 203k Loans

Low 3.5% downpayment requirement

Must hire a professional licensed general contractor (no DIY repairs)

640+ credit scores qualify

Labor and time-intensive

Get extra money to make cosmetic repairs

Requires mortgage insurance premiums

Borrow money to make mortgage payments for up to 6 months

Extended closing times

Get cash for major repairs or renovations

Strict underwriting requirements

Low interest rates

Construction consultant required

FHA energy efficient mortgage

The FHA energy efficient mortgage program finances the purchase of a home and funds to make energy efficient upgrades.

Native American Direct Loan (NADL)

Native American veterans can build a home on a Federal Trust loan using the Native American Direct loan which is a type of government-backed home loan. A minimum 620 credit score is required for 100% financing.

Read More » Information on the Native American Direct Loan Program

Government Loan Refinance Programs

Streamline Refinance

Government-backed mortgage loans offer streamline refinancing which is a way to refinance your loan quickly with less documentation. Income documents and a home appraisal are not needed. A streamline refinance is available for FHA and USDA loans. The VA streamline refinance program is called an Interest Rate Reduction Refinance Loan (IRRRL).

Streamline Refinance Program Benefits

• A home appraisal is not required

 Lower your monthly payment

 No income verification

• Minimal documentation required

• Quick and easy process

 Lower your interest  and MIP rates

• Lower your mortgage insurance rate

 No loan-to-value limits (You can be underwater on your mortgage)

Read More » FHA Streamline Refinance Program

Cash-Out Refinance

A cash-out refinance lets you convert the equity in your home to cash. You will receive a new mortgage that replaces the current loan up to 80% of the loan-to-value ratio.

Cash-out Refinance Pros and Cons

Get cash at a lower rate than other types of loans

Closing costs are as much as a regular mortgage

Pay off student loans or other types of debts

Reduces the amount of equity your have in  your home

Pay off high-interest credit cards

Home at risk of foreclosure if you can’t make the monthly payments

Renovate and make home repairs

May increase your mortgage payments

Payments are tax-deductible

Spend cash as you please

One mortgage payment

Take advantage of lower interest rates that occur in the housing market

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