Government-Backed Home Loans

Government-backed loans are designed to make financing available to buyers who may benefit from lower down payment requirements or more flexible qualification guidelines.

The government typically does not lend you the money directly. Instead, programs such as FHA and VA insure or guarantee eligible loans made by approved lenders, which reduces some of the lender’s risk.

FHA Loans

An FHA loan is a mortgage insured by the Federal Housing Administration. FHA loans are especially popular with first-time buyers, but you do not have to be a first-time homebuyer to use one. They are worth exploring if you have limited money for a down payment, or your credit is not quite where you would like it to be.

Why buyers consider FHA

• Down payments can be as low as 3.5 percent for qualifying borrowers
• More flexible credit guidelines than some conventional financing
• Available for qualifying primary residences
• Can be used for certain 1 to 4 unit properties, condos and other eligible homes
• You can use FHA more than once as long as program requirements are met

What about credit?

Your credit matters, but a less-than-perfect score does not automatically mean homeownership is off the table. FHA guidelines may allow financing for borrowers with lower credit scores than some conventional programs. Actual requirements vary by lender, and your entire financial picture is considered.

FHA Mortgage Insurance

FHA loans require mortgage insurance, which helps protect the lender if the borrower defaults. There are generally two components:

• Upfront Mortgage Insurance Premium (UFMIP): an upfront cost that may generally be financed into the loan.
• Annual Mortgage Insurance Premium (MIP): an ongoing cost typically divided into monthly payments and included with your mortgage payment.

How much you pay, and how long you pay it, depends on the loan and current FHA requirements.

The Home Has To Qualify, Too

Getting approved yourself is only half of the equation. With an FHA loan, the property must also meet FHA requirements. An FHA appraisal considers the property’s value and certain minimum property standards, and significant safety, structural or condition issues may need to be addressed before the home qualifies.

This does not mean an FHA buyer can only purchase a perfect home. It simply means not every property will qualify in its current condition.

Want A Fixer-Upper? There Is An FHA Loan For That.

An FHA 203(k) renovation loan may allow an eligible buyer to combine the purchase of a home and qualifying renovation costs into one mortgage. Depending on the program, eligible improvements may include:

• Roofing
• Flooring
• Plumbing
• Structural alterations
• Accessibility improvements
• Modernization
• Certain health and safety improvements
• Major landscaping or site improvements

There are additional requirements, so this is one where working with a lender familiar with 203(k) financing is especially important.

What Happens During FHA Approval?

1. You apply. Your lender gathers information about your income, employment, credit, debts and assets.
2. Your finances are reviewed. An underwriter verifies that the loan meets the applicable lending and FHA requirements.
3. The property is reviewed. The home is appraised and must meet the applicable requirements for the loan.
4. You may receive conditions. The lender may ask for additional documents or explanations before final approval.
5. Final approval to closing. Once the necessary requirements are satisfied, the loan can move toward closing.

Being asked for additional paperwork during underwriting is normal. It does not automatically mean something is wrong.

VA Home Loans

VA loans are backed by the U.S. Department of Veterans Affairs and are designed to help eligible service members, veterans and certain surviving spouses purchase a home. For eligible buyers, the benefits can be significant.

• No down payment may be required
• No monthly private mortgage insurance
• Limits apply to certain closing costs
• You do not have to be a first-time homebuyer
• The benefit may be used more than once, subject to eligibility and entitlement
• Competitive loan terms may be available

The home generally must be purchased for the borrower’s personal occupancy, rather than solely as an investment property.

Who may qualify?

Eligibility is based primarily on qualifying military service. That can include certain active-duty service members, veterans, National Guard and Reserve members, and surviving spouses. Specific service requirements vary.

Eligible borrowers generally obtain a Certificate of Eligibility, which verifies to the lender that they meet the VA’s service-related requirements. Your lender can help determine eligibility and obtain the documentation.

Does VA require perfect credit?

No. The VA program does not work exactly like a conventional loan with one universal minimum credit-score rule. Individual lenders may set their own credit requirements and will review your overall financial profile. VA underwriting can also consider residual income, which is the money remaining after major monthly obligations and living expenses. In other words, the lender is looking at more than one number.

VA funding fee

VA loans generally do not require monthly mortgage insurance, but many borrowers pay a VA funding fee instead. The amount can depend on the type of loan, military category, whether you have used your benefit before and your down payment. Some eligible borrowers may be exempt. Your lender will determine what applies to you.

Already have a VA loan?

Eligible homeowners with a VA-backed mortgage may have access to the Interest Rate Reduction Refinance Loan, often called a VA streamline refinance. It is designed to make refinancing an existing VA-backed mortgage simpler in qualifying situations. Whether refinancing makes financial sense depends on your circumstances and current loan terms.

The Biggest Thing To Remember

You do not need to know which loan you need before you start looking into buying. Your credit score, income, debts, savings, military eligibility, property type and other factors all influence which financing option makes the most sense. A smaller down payment or imperfect credit does not necessarily mean you are not ready to explore homeownership.

If you are not sure where you stand, that is completely okay. Start with a conversation. I can help you understand the process and connect you with a qualified lender who can review your situation and explain the financing options available to you.