The words “I’m from the government, and I’m here to help” don’t have to strike fear into your heart. For many first-time homebuyers, government-backed mortgage loans and payment programs are the ticket to affording the perfect starter home. Government loan programs can assist borrowers with down payment and closing costs, offer competitive interest rates, and enable those with weak credit to get approved for a loan. Here are a few government mortgage loans and payment programs to consider:

1. FHA Loan: Ideal for Those with Lower Credit Scores

Backed by the Federal Housing Administration, FHA loans allow lenders to offer low down payment loans to people who might not have pristine credit. If you have good credit but you have limited savings or a high debt-to-income ratio, an FHA loan could be a great option for you as well.

  • Income limit: None
  • Benefits: Low closing costs and down payments (as little as 3.5 percent); allows credit scores as low as 580; allows debt-to-income ratios of up to 50 percent.

If you opt for an FHA loan, you will have to pay both an upfront mortgage insurance premium (1.75 percent of the loan amount), as well as an annual mortgage insurance premium (anywhere from 0.45-1.05 percent).

2. VA Loan: Great for Service Members and Their Families

VA loans are available to service members, veterans, and surviving spouses of veterans who meet the eligibility requirements. Once you have your VA loan certificate of eligibility (COE), you can work with a participating lender who will request a VA appraisal of the home and determine whether to finance the purchase based on your credit and income information.

  • Income limit: None
  • Benefits: Option of zero down payment; no mortgage insurance (VA funding fee instead); no official minimum credit score; low interest rates.

The U.S. Department of Veteran Affairs guarantees a portion of the loan known as the basic entitlement, which is 25 percent of your total mortgage or $36,000—whichever is less. In most cases, lenders will offer to loan up to four times that amount, meaning you could finance a $144,000 home on the basic entitlement. If you’re looking at a home worth more than that, a bonus entitlement can be used.

3. USDA Loan: Perfect for Homes Located Outside of Cities

The U.S. Department of Agriculture offers guaranteed and direct loans for homes in designated rural areas, which encompass approximately 97 percent of land in the United States.

The two main types of USDA loans are USDA guaranteed loans, which are issued by private lenders but backed by the USDA; and USDA direct loans, which are issued directly by the USDA, with payment assistance provided in the form of a subsidy.

  • Income limit: There are income limits for USDA direct loans that depend on your location and the number of people who will live in the home. The USDA Rural Development table lists the limits in every county in the country.
  • Benefits: Option of zero down payment; lenient credit requirements; competitive interest rates; 100 percent financing; low monthly mortgage insurance premiums.

If you’re interested in applying for a USDA direct loan, you should contact your state’s USDA office. For USDA guaranteed loans, you should reach out to a participating lender like radius financial group.

4. First-Time Homebuyer State Programs: Can Be Paired with Federal Programs

Every state has its own home assistance programs, many of which help first-time homebuyers. The level of assistance varies from state to state, with some offering substantial tax credits, zero-interest loans, and grant money, while others offer only modest tax credits.

For example, the My First Texas Home Loan offers low-interest mortgages and helps with down payment and closing costs by offering an interest-free, no-monthly-payment lien worth up to 5 percent of the mortgage. You can check out the homebuyer programs offered in your state here.

5. Home Renovation Programs: Allow You to Include Renovation Money in the Mortgage

Although not stand-alone loans, government home renovation programs and insurance can simplify the often complicated and costly process of financing both a home and its necessary renovations. Here are two home renovation options offered by the U.S. Department of Housing and Urban Development (HUD):

  • FHA 203(k) Rehab Mortgage Insurance: Allows homebuyers to finance a home and the cost of rehabilitation through a single mortgage.
  • Energy Efficient Mortgage Program: Allows those with an FHA-insured mortgage to include the cost of energy-efficient improvements in their financing.

There are a variety of federal home loans available for home improvements. Check out more options here.

6. Good Neighbor Next Door: Gives Teachers, Law Enforcement, and First Responders a Break on Home Price

This HUD-sponsored program offers law enforcement officers, pre-K through 12th grade teachers, firefighters, and emergency medical technicians a 50 percent discount from the list price for single-family homes in revitalization areas. If you’re eligible for this program, keep an eye on the listings in your state. To get the discount, you must commit to the home being your primary residence for at least 36 months.

How to Decide Which Loan Is Right for You

The best loan for you will depend on your situation, but for any government-backed mortgage loan, you will need to find a participating lender like radius financial group to issue the loan. The first step toward financing a home will be getting pre-approved for a mortgage loan. Discover advice from expert loan officers on how best to navigate that process in our mortgage preparedness e-book.

 

Mortgage prequalification