What Loans Are Protected by the Federal Government?
The interest rate on your home loan can make a significant difference in the size of your monthly mortgage payment. If you have a 30-year, fixed-rate mortgage loan of $200,000, you will pay $1,199.10 each month if you have an interest rate of 6 percent. You will pay just $1,073.64 a month for the same loan if you, instead, have an interest rate of 5 percent. That equals big savings each year. Buyers with good credit and solid gross monthly incomes can increase their chances of obtaining the lowest interest rates by taking out a mortgage protected by the federal government. Lenders generally give these loans their lowest rates because loans protected, or insured, by the federal government are considered safer risks.
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FHA
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Loans insured by the Federal Housing Administration (FHA) are the most common type of government-insured mortgages. These loans also come with several benefits, and borrowers need only boast credit scores of 580 to qualify for them. Also, FHA-insured loans require down payments of just 3 1/2 percent of a home's purchase price. Buyers without a lot of cash can more easily scrounge up this down payment, as opposed to the down payments of 20 percent of a home's purchase price that many traditional lenders require.
VA
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The U.S. Department of Veterans Affairs (VA) offers its own home loans to current members or veterans of the U.S. military. The biggest advantage of VA loans is that they require no down payments at all.
You have to provide a Certificate of Eligibility to prove that you have served or are serving in the military. Often, your lender or bank can obtain this certificate on your behalf. If not, you can obtain this certificate from the VA website (click on the link in the Reference section).
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USDA
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The U.S. Department of Agriculture (USDA), through its Rural Development program, offers its own guaranteed home loans. Like VA loans, these loans do not require any down payments, a big advantage for homeowners without a lot of extra cash.
To qualify for the program, though, you must buy a home in a Rural Development area. To determine if the home in which you are interested sits in one of these areas, visit the USDA website (click on the link in the Reference section).
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References
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