Government loan programs

FHA loans

An FHA loan is insured by the Federal Housing Administration, a federal agency within the U.S. Department of Housing and Urban Development (HUD). The FHA does not loan money to borrowers, rather, it provides lenders protection through mortgage insurance (MIP) in case the borrower defaults on his or her loan obligations. Available to all buyers, FHA loan programs are designed to help creditworthy low-income and moderate-income families who do not meet requirements for conventional loans. 

FHA loan programs are particularly beneficial to those buyers with less available cash. The rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans.

Some of the other benefits of FHA financing:

• Only a 3.5% down payment is required.
• Seller can pay all closing cost, in most cases. (Seller can pay up to 6% of purchase price toward buyers closing cost & pre-paids)
• Lower monthly mortgage insurance premiums and, under certain conditions, automatic cancellation of the premium.
• More flexible underwriting criteria than conventional loans (lower credit scores allowed)
• Loans are assumable to qualified buyers. 

VA Loans

VA guaranteed loans are made by lenders and guaranteed by the U.S. Department of Veteran Affairs (VA) to eligible veterans for the purchase of a home. The guaranty means the lender is partially protected if you fail to repay the loan. In most cases, no down payment is required on a VA guaranteed loan and the borrower usually receives a lower interest rate than is ordinarily available with other loans.

Other benefits of a VA loan include:

• Closing costs are comparable and sometimes lower - than other financing types.
• No private mortgage insurance requirement.
• Right to prepay loan without penalties 
• The Mortgage can be taken over (or assumed) by the buyer when a home is sold, assuming the buyer is also an eligible veteran.
• Seller can pay all closing cost, in most cases. (Seller can pay up to 6% of purchase price toward buyers closing cost & pre-paids)
   

Although mortgage insurance is not required, the VA charges a funding fee to issue a guarantee to a lender against borrower default on a mortgage. The fee may be paid in cash by the buyer or seller, or it may be financed in the loan amount. Veterans receiving VA disability are exempt from the VA funding fee. 

A VA loan can be used to buy a home, build a home and even improve a home with energy-saving features such as solar or heating/cooling systems, water heaters, insulation, weather-stripping/caulking, storm windows/doors or other energy efficient improvements approved by the lender and VA. 

Veterans can apply for a VA loan with any mortgage lender that participates in the VA home loan program. A Certificate of Eligibility from the VA must be presented to the lender to qualify for the loan.

 USDA/Rural Development Loans

 USDA/RD loans are made by approved USDA/RD lenders and are issued a commitment by the U.S. Dept of Agriculture (USDA). USDA loans are primarily no down payment mortgage loans, but borrowers can make a down payment if they choose. The property must be in an eligible area to qualify for USDA financing. Urban areas are typically not qualified areas due to the loan is geared to rural areas. 

Other benefits of a USDA/RD loan include:

• Low interest rates
• Seller can pay all closing cost, in most cases. (USDA does not have a cap on seller paid closing cost, but lenders typically cap seller paid closing cost to 6%)
• 30 year fixed term
• Low mortgage insurance premiums
• Flexible underwriting criteria