With the spring homebuying season in full force, it’s time to educate yourself on the loan options available to you. In this blog post, we will discuss government loans, focusing specifically on the options available to consumers and the benefits of each one.
So what are government loans?
Government loans are loans that are insured, or backed, by the federal government. In insuring these loans, the government is protecting the lender in the event the borrower is unable to repay the debt. With this assurance, lenders are able to offer borrowers lower interest rates on loans as they are assuming less risk.
What types of government loans are available and what are the advantages of each one?
FHA loans are backed by the Federal Housing Association and have lower down payment and credit requirements than other loans. They do not require military service as VA loans do, nor do they require you to purchase your home in a certain geographic area, making them more accessible than other options. Typically, an FHA loan will allow you to put down as little as 3.5% when purchasing your home and will feature lower closing costs.
USDA Rural Development loans are loans that allow buyers to purchase homes in select rural or eligible suburban areas. Backed by the Rural Development Guaranteed Housing Loan Program, these loans are typically limited to people with low to moderate incomes and do not have a minimum down payment requirement. Funds obtained from a USDA Rural Development Loan can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities. More information on eligible areas for USDA loans can be found here.
VA loans are available to current military personnel and veterans. These loans do not have a minimum credit score requirement, though many lenders set their own minimum requirements that must be met. VA loans allow you to finance up to 100% of the purchase price of a loan and have no private mortgage insurance (PMI) requirements.
Interested in learning more about government loans or seeing if you qualify?