Government loans are, as the name suggests, insured or guaranteed by the government. Note that the insurance protects the lender and not the borrower, encouraging a lender to make loans even if a borrower doesn’t meet certain criteria.
Also note that not all may qualify for certain government loans and some loans may be even more expensive than conventional financing. What makes such loans popular is the fact that the qualification standards are much less stringent than conventional mortgages for qualified borrowers.
The widely popular FHA loans are backed by the Federal Housing Administration (FHA), an arm of the U.S. Department of Housing and Urban Development (HUD). The lender is protected in case of a borrower’s default as the lender is paid in full and the borrower’s house is taken by HUD and either foreclosed or sold.
The following are some of the FHA insured mortgage options.
FHA 203b Loan
This is the most popular loan as it allows you to pay down as little as 3.5% of the loan amount at closing. Besides, you do not need a very good credit score to qualify and some of your closing costs are also covered under the loan program.
Energy Efficient Mortgage (EEM)
FHA has a program that lets you save money on utility bills by adding energy efficiency features to a new or existing home. You can get special financing help under EEM to buy a home that meets the relevant guidelines of the Federal Housing Administration.
The most popular example of a rehabilitation mortgage sponsored by FHA is 203(k), which allows a borrower to finance the buying price of a home as well as the cost of its repair work. With a rehabilitation mortgage, you do not have to take two separate loans for buying and rehabilitation.
It is a loan program that allows you to make non-luxury improvements to your home. You can easily borrow up to $7,500 under FHA Title 1 program for renovations or repairs without risking your home.
This is a mortgage program guaranteed by the Department of Veteran Affairs (VA). Only eligible U.S. Veterans can qualify for a VA mortgage, which is available only at lenders who participate in the home loan program of the department. An eligible borrower must try a VA loan before beginning to consider any other option.
Rural Housing Service (RHS) is an agency within the Department of Agriculture. It helps farmers and other qualified borrowers buy a property in rural area. If you have a low income and want to purchase a home in a rural location, then RHS loans might be an option. Ask a lender about the rural housing loan that may be available at attractive terms. Funds are borrowed from the U.S. Treasury.