When it comes to home loans and mortgages, there is no one-size-fits-all option. Not only are there different types of loans, there are two primary categories of loans – conventional and those that are backed by the Federal Government or government-backed loans. In most cases, government-backed loans are easier to qualify for and have lower interest rates which make them more affordable as well. These loans make homeownership easier to attain and are more popular than other types of financing. However, there are many aspects to consider before the homeowner can qualify for it.
How Do These Loans Work?
There are several Federal Government agencies that offer mortgage programs for prospective homeowners including:
- the Department of Agriculture
- the Department of Veterans Affairs
- the Federal Housing Administration (FHA)
Each of these agencies guarantees or insures the amount of the loan so that in the event that a borrower is unable to repay the loan, the lender is protected. This helps to eliminate a significant amount of risk for the lender and makes it easier for them to offer the borrower lower interest rates and lower percentage or no down payment options. And that helps the potential homeowner too.
4 Ways Government-backed Loans differ from Conventional Loans
- Conventional loans are riskier for lenders because they aren’t guaranteed or insured by the government. Consequently, lenders have stricter eligibility requirements.
- Conventional loans are typically more accessible than mortgage loans that are backed by the Federal Government.
- Cost structures of government-backed loans differ from conventional loans where PMI (private mortgage insurance) and upfront fees are concerned.
- Unlike Federal Government-backed loans, you won’t see eligibility requirements with conventional loans. For example, in order to receive a VA home loan, you must be a member of the US Military.
3 Types of Government-backed Loans
There are three different types of government-backed loans – FHA, USDA, and VA loans. FHA loans have lower credit and down payment requirements and are backed by the Federal Housing Administration. USDA loans help borrowers with lower to medium incomes buy homes in rural and suburban areas. The Rural Development Guaranteed Housing Loan Program backs USDA loans. VA loans are backed by the Department of Veterans Affairs and help current military members buy homes. They also offer cash-out refinancing programs.
Government-Backed Loans with H.O.M.E Lending
Government-backed loans provide more individuals with an opportunity to purchase a home. Since the Federal Government guarantees or insures these loans, lender risk is greatly reduced. However, because of this, there are stricter qualification limitations.
To learn more about government-backed loans, contact H.O.M.E. Lending today at (209) 477-0262. They are here to help you!
Distribution Links +