Government Mortgages

Owning a home is a goal that many people in the United States have. However, it can be a challenge to save up the thousands of dollars needed to pay closing costs and come up with a down payment on a home.

Fortunately, home loans backed by the federal government may help to cover some or all of these costs and make it easier for almost anyone to buy a house.

FHA, VA and USDA loans are all examples of loan products that are backed by the United States government. While the government does not offer loans directly to consumers, they guarantee lenders that they will be paid back in full either by the borrower or by the taxpayers. While government agencies set minimum loan standards, lenders are free to add stipulations of their own.

What to Know Before Applying

It is important to understand that different loans are aimed at different segments of the market. For instance, USDA loans are only available to those who want to live in a part of the country designated as rural. VA loans are only available to those who were in the military or a family member of someone who was in the military.

Pros and Cons

One of the biggest benefits of getting a government loan is that you may not need a down payment. If you do need a down payment, it may be possible to ask a friend or family member to gift that money to you. One of the biggest downsides of getting a government loan is that you may need to pay mortgage insurance. Mortgage insurance equals roughly 1 percent of the home's purchase price paid in monthly installments.

Who Offers These Loans?

A variety of lenders offer government loans to borrowers of all income and credit levels. Those who don't want to get a mortgage through a large bank may find that credit unions or other financial institutions offer FHA, USDA and VA loans. Local lenders may also offer their own programs designed to help borrowers qualify for a mortgage. Mortgage brokers may also have access to a number of loan programs that can help first-time buyers or those with a low income get the financing that they need.

Who Are They Best Suited For?

Government loans are best suited for those who make less than $50,000 a year. They are also best suited for those who have mediocre credit scores or are in the market for their first home. In many cases, those applying for an FHA or USDA loan can have a credit score of 640 or lower and still get approved for a loan. If you have student loan or other types of debt, these loans may be for you as well because you can still qualify with a debt-to-income ratio of up to 50 percent.

If you don't think that you would qualify for a traditional mortgage, a government loan may an ideal alternative. Interest rates are generally competitive, and you don't need to come up with as much money at closing time. Therefore, it may help you get into the home of your dreams without putting you too close to financial ruin.

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