A government backed mortgage can decrease how risky you are as a borrower. FHA, USDA, and VA mortgage rates tend to be lower than conventional loans since lenders consider the debt more secure. Plus, you can save more money with lower interest rates.
An FHA or USDA mortgage also has lower down payment requirements than conventional loans. Homeownership may be more accessible if you need to pay just 5 percent instead of 20 percent of the purchase price.Government-backed loans can also reduce your upfront costs, lower monthly payments, and make it easier for you to qualify for a low-interest mortgage.
A government backed mortgage is a federal agency’s promise to pay the debt if the borrower goes into foreclosure. Since the lender has a guarantee of payment, it can provide the borrower with better rates and terms than they might otherwise qualify for.
The Federal Housing Administration, the U.S. Department of Agriculture, and the Department of Veterans Affairs provide mortgage insurance for most government-backed loans. Each loan and program has different requirements, limits, and conditions.
FHA Loans
An FHA home loan may make homeownership more attainable and easier to afford. You may have an easier time applying for FHA mortgage loan if you have:
- Difficulty saving for a down payment.
- Poor credit.
Down payments for an FHA mortgage can be as little as 3.5 percent. You can often incorporate your closing costs into your loan to reduce your upfront costs.
The FHA requires a credit score of at least 580, but lenders may prefer 620 or higher. While you are more likely to qualify for a government backed mortgage, you must still meet the lender’s requirements.
And FHA interest rates tend to be half a point less than conventional loans, even if you have less than perfect credit. Lower interest rates mean you can save money each month for the duration of the term.
You might get pre approved for FHA loan amount before you start house shopping. Knowing your FHA mortgage pre approval limit can help you narrow your options.
USDA Loans
Like FHA loans, USDA-backed mortgages have low interest rates. But a USDA home loan has the following additional perks:
- No Down Payment – You may apply for 100 percent financing with a USDA mortgage, meaning you do not need to have a down payment to purchase the home. You may have a one percent funding fee, which is similar to the one percent origination fee.
- No Private Mortgage Insurance – USDA has the lowest fees of all government-backed loans. The annual fee for a USDA mortgage is 0.35 percent of the loan’s remaining balance, and it is rolled into the monthly mortgage payment.
The USDA loan prequalification requirements include being a U.S. citizen or permanent resident, having acceptable credit, and maintaining a regular income for at least 24 months. The USDA mortgage pre approval process also looks at your debt-to-income ratio and how much you can afford to pay.
VA Loans
VA loans are exclusively for qualified service members, veterans, and surviving spouses. Like the other programs, VA mortgage rates are competitive and typically less than conventional mortgages. The following are just a few benefits of a VA home loan:
- No Down Payment – The VA does not require a down payment, but lenders may require one in select circumstances.
- No Private Mortgage Insurance – The VA has a one-time funding fee unless you have a service-related disability, Purple Heart, or another qualifying factor. The funding fee depends on your down payment amount and loan type, but it could be between 1.4 and 3.6 percent of the loan amount.
A VA home loan is not a one-time opportunity. You can get pre approved for VA loans for multiple homes. Applying for a VA home loan requires you to get a Certificate of Eligibility (COE), which confirms your status as a service member, veteran, or surviving spouse.
By Admin –
