Government Home Loans


Types of Government Home Loans

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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 the federal government guarantees a government-backed home loan.

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 mortgage loan type, 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.

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.

2020 USDA Loan Requirements

  • 640 minimum credit score
  • Total household income less than 115% of AMI
  • Maximum 43%-50% debt-to-income ratio
  • Two years of stable employment history
  • Occupy the property as your primary residenc
  • Proof of income (Two years of tax returns and W2’s)
  • Buy a home in a USDA-eligible location

 

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.

VA Eligibility Requirements

  • Active-duty service member
  • Current or former activated National Guard or Reserves
  • Surviving spouse
  • Discharged member of the National Guard or Reserves and never activated
  • Discharged member of the National Guard and were never activated

 

FHA 203k Loans

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

203k Loan Requirements

  • Minimum 620 credit score
  • 24 month waiting period after a bankruptcy or foreclosure
  • Maximum 43%-50% debt-to-income ratio
  • For primary residence only

 

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, 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, 203k, and USDA loans. The VA streamline refinance program is called an Interest Rate Reduction Refinance Loan (IRRRL).

FHA Streamline Refinance Requirements

  • You must currently have an FHA-insured mortgage
  • 210 day waiting period since closing
  • No late mortgage payments in the past 12 months
  • Refinancing must produce a net tangible benefit
  • Available for primary residence only

 

Read More » FHA Streamline Refinance Program

Cash-Out Refinance

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 Requirements

  • 620 credit score
  • No mortgage late payments in past 12 months
  • At least 30% equity in the home
  • 50% debt-to-income ratio
  • Available for primary residence only
  • Borrow up to 80% LTV ratio