Learn About the 4 Types of Government Home Loans. You Are Eligible For One or More of These Programs!
Federal Housing Administration (FHA)-guaranteed loans may be the most well known government home loans, but they are by no means the only government home loans available today. FHA loans are available regardless to anyone, but if you are a US service member or veteran, live in a rural area, or are a Native American, you may be eligible for a government-guaranteed, low down-payment loan. Read on to learn about FHA, VA, USDA, and Section 184 home loans.
Federal Housing Administration
The FHA administers approximately a half-dozen guarantee programs to help people finance the purchase of homes, and borrow money to make their newly purchased or existing homes more efficient. The programs include:
- Basic FHA Insured Home Mortgage
- Mortgage Insurance for Manufactured Home and Lot
- Energy Efficient Upgrade Mortgage Loan
- PowerSaver Home Energy Retrofit Loan Pilot Program
The FHA does not lend money directly to home buyers. FHA-approved lenders make loans through FHA insurance programs. Here are five key facts about FHA loans:
- Any person intending to be an owner-occupant can apply for an FHA insured mortgage.
- The FHA limits the amount that can be borrowed. FHA limits are set by where the property is situated.
- FHA limits some lender fees. For example, the lender mortgage origination fee may not exceed 1 percent.
- Downpayments start at 3.5 percent.
- The FHA allows lower credit scores than borrowers with conventional loans.
See the Bills.com FHA Loan Limits, Requirements, Rates & Tips article to learn more about FHA loans.
|Government Home Loans|
| Federal Housing |
|Does not make loans to home buyers, but instead insures FHA-conforming loans offered by FHA-approved lenders. See below for basic eligibility requirements.|
| Veterans |
|Loan guarantees for US service members, veterans, reservists and certain qualifying unmarried surviving spouses for the purchase of home or refinancing of a VA home loan.|
|Public and Indian Housing (section 184)||Guaranteed, low down-payment mortgage loan program for Native Americans/American Indians buying a home that will be their primary residence.|
|USDA||Direct and guaranteed loans to buy, build, or improve very low-, low- or moderate-income applicant's permanent residence in an eligible rural area.|
The VA offers several housing loan guarantees, including basic home purchase, new home construction, and refinances of existing VA loans. Like the FHA, the VA does not lend money, but instead guarantees loans to qualified borrowers. Qualified borrowers include:
- Veterans (including Reserve and National Guard members called to active duty)
- Active duty service members
- Reserve and Guard members (usually after 6 years of reserve service)
- Some surviving spouses of qualified borrowers
- PHS and NOAA commissioned officers are considered active duty members and veterans, once discharged.
Length-of-service requirements apply in most cases, and veterans must have been discharged under conditions other than dishonorable. To qualify for a VA loan, the applicant will need a Certificate of Eligibility (COE). Contact a lender about obtaining a COE, or download VA Form 26-1880.
See the Bills.com article VA Loans & How to Get One, to learn more about VA loans.
Public and Indian Housing (Section 184)
To use the Section 184 Loan, the borrower must be an enrolled member of a federally recognized tribe. A qualified applicant may use a Section 184 loan to purchase an existing home, build a new home, rehabilitate a home, or refinance a loan. Section 184 loans can be used for a primary residence of one to four units.
A Section 184 loan has five advantages:
- A 2.25 percent down payment on loans more $50,000 and 1.25% on loans less than $50,000
- Interest rates based on market rates and independent of the applicant's credit score
- Manual underwriting and approval
- A one-time 1% up-front guarantee fee is paid at closing that can be financed into the loan. There are no monthly insurance fees
- Fees are monitored.
|Government Loan Terms|
|Program||Max Amount||Rate||Term in Years||Fees|
| Federal Housing |
|Based on locale||Market||Up to 30||Varies|
| Veterans |
|None||Market||30||VA funding fee|
| Public and |
|150% percent of the FHA lending Limits for the Area||Market||30||One-time 1% up-front MI fee|
|USDA||"Modest in size, design, and cost" Subject to income limits.||Varies||Guaranteed: 30. Direct: 33-38||Guaranteed: 1.5% Direct: 0|
USDA direct and guaranteed loans may be used to buy, build, or improve a permanent residence. New manufactured homes may be financed if on a permanent site. Homes may be re-financed with direct loans. USDA loans are not limited by amount, but must be "modest, decent, safe, and sanitary." The value of a home financed with a direct loan may not exceed the area limit and must be located in an eligible rural area.
Applicants must have "very low, low, or moderate incomes." Very low-income is defined as below 50 percent of the area median income (AMI). Low-income is between 50 and 80 percent of AMI. Moderate income is below 115 percent of AMI. Families must be without adequate housing, but able to afford the housing payments. Applicants must be a U.S. citizen or permanent resident.
Direct loans are repaid over 33 years or 38 years for applicants whose adjusted annual income does not exceed 60 percent of the area median income. Payment assistance is granted on direct loans to reduce the installment to an "effective interest rate" as low as one percent, depending on adjusted family income. Payment assistance is subject to recapture by the government when the customer no longer resides in the dwelling. There is no funding provided for deferred mortgage authority or loans for deferred mortgage assumptions.
Guaranteed loans are amortized over 30 years.
Contact the USDA to learn more about direct and guaranteed loans.