Mortgage Basics FAQ

What kinds of government loans are available to homebuyers?

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What kinds of government loans are available to homebuyers?

Several federal, state, and local government financing programs are available to homebuyers. The two main federal programs are:

FHA loans. The Federal Housing Administration (FHA), an agency of the Department of Housing and Urban Development (HUD), offers insurance backing to loans made to U.S. citizens, permanent residents, and noncitizens with work permits who meet financial qualification rules. Under its most popular program, if the buyer defaults and the lender forecloses, the FHA pays 100% of the amount insured. This loan insurance lets qualified people buy affordable houses. The major attraction of an FHA-insured loan is that people with passable credit scores can put down as little as 3.5%. Another plus is that, unlike with conventional loans, FHA-backed loans allow the entire down payment and costs costs to come from a gift (perhaps from family). The downside is that FHA loans have a maximum loan limit that varies depending on the average cost of housing in a given region. (Find out FHA's loan limits at www.fha.com by clicking on “2014 FHA Limits.”) Also, you’ll have to pay MIP (mortgage insurance premium) as part of an FHA loan. For more information on FHA loan programs, contact a regional office of HUD or check the FHA website at www.hud.gov.

VA loans. U.S. Department of Veterans Affairs (VA) loans are available to men and women who are now in the military and to veterans with honorable discharges who meet specific eligibility rules relating to length of service, credit history, and recent employment, as well as eligible surviving spouses. The VA doesn't make mortgage loans, but guarantees part of the house loan you get from a bank, savings and loan, or other private lender. If you default, the VA pays the lender the amount guaranteed and you, in turn, will owe the VA. This guarantee makes it easier for veterans to get favorable loan terms with low or no down payment and no PMI (private mortgage insurance). (Conventional mortgages have PMI and FHA loans have MIP.) For more information, check www.va.gov or contact a regional VA office for advice.

Other government loan programs. For information on other government loans, contact your state and local housing offices. They often have programs available for first-time homebuyers who are purchasing modestly priced properties. To find your state housing office, check the State and Local Government on the Net Directory at http://statelocalgov.net. Or go to your state's home page, where you may find the listing for your state's housing office.

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