If you have ever needed a mortgage, you know all about the different choices you need to make before securing one. Will you go with a fixed rate loan or an adjustable? Do you prefer a long, 30 year amortization period or a shorter one? These are just a few of the many important considerations you will have to make.
However, another one is to think about whether you qualify for a government-backed loan or not. These loans protect lenders against defaults, so they open up affordable home ownership for more people.
In addition to that, these loans will come with a variety of different benefits for potential home buyers over conventional loans that most of us go for, but there are also some caveats. This article will look at a few different kinds of government-backed mortgages and what they’re all about.
USDA Home Loan
These loans were once only for farmers, but have now opened up for anyone who is wanting to live in a rural community that is eligible. The USDA (United States Department of Agriculture) backs these loans and the loans have the goal of helping more Americans buy homes in rural areas across the country.
These can guarantee up to 100% financing on a 30-year mortgage and can be a huge help to those with a low-income who want to become homeowners. Many of these will even allow for low or no down payment, which is a nice bonus. However, these will often come with an upfront mortgage insurance fee, as well as a monthly mortgage insurance premium.
FHA Home Loan
An FHA loan is a home loan that helps lower the cost of financing and down payments, which will allow more low-income households to purchase homes. These loans are insured by the FHA (the Federal Housing Association) and they are a great option for those individuals who might not otherwise be able to apply for and be qualified for a mortgage.
Even if your credit is not great, there is still a chance you will be able to qualify for an FHA home loan. The down payment for these loans can also be as little as under 5%, which will save a lot of the upfront costs that a lot of people must pay when getting a mortgage. However, you will still need to pay a mortgage insurance premium, as the loan is covered by the government.
VA Home Loan
A VA home loan is provided by the United States Department of Veterans Affairs and is a way for active and retired military a chance for affordable home ownership. These loans not only have 0% down payment, but they also include no mortgage insurance premium, which is different than the other government-backed loans we have mentioned so far.
However, the requirements for getting these loans are a little bit more strict and they can be more difficult to secure. For example, you must have decent credit, must have actively served or have a spouse that has served and a special appraisal of your home must take place, as well.
In conclusion, these loans can have great benefits up front with less down payment and more flexibility, they will often come with more strict terms and a higher interest rate, which could cost you more in the long run. As a result, you need to think about your unique situation before going with a government-backed mortgage.