Government Mortgage Options

Choosing a government-backed mortgage option can help buyers receive the keys to their new homes.house image by hans slegers from Fotolia.com

Obtaining a mortgage is a lengthy and stressful time for any prospective home buyer. Finding a lending institution that you feel comfortable doing business with is a key decision during the process. Government-backed loans can be a safe option for many, as programs have been in place for decades. In addition, choosing a government-backed loan product gives homeowners the opportunity to participate in government assistance programs should unexpected financial hardships occur.

Federal Housing Administration

Many financial institutions have the ability to offer loans that are federally insured by the Federal Housing Administration (FHA). The program was originally designed to assist low- to moderate-income families with the purchase of a home. Lending standards for an FHA loan are generally more lenient than conventional loans and downpayment costs are lower. Each state has set lending limits determined by an average cost of ownership. To qualify for an FHA loan, an individual must meet specific credit requirements, obtain mortgage insurance, and have a debt-to-income ratio of 29 percent or less. In addition to offering loans for the original purchase of a home, the FHA also offers a refinance program.

The United States Department of Agriculture (USDA) offers guaranteed loan programs through its Rural Development (RD) branch. The loan programs are designed to assist low- to moderate-income families who live in rural areas of the country. Loan options are available for the purchase of a primary residence, a housing site or the construction of a new home. In addition, the RD program has an option for very low-income borrowers, allowing them to obtain funding for necessary repairs to their homes. To qualify for a loan through the RD program, an individual or family must have an income lower than 115 percent of the median income for their area; in addition, they must be without proper housing but have the ability to repay the mortgage along with insurance and taxes. Reasonable credit scores are also required, and loan limits will vary by state.

Individuals who have served or are currently serving in the U.S. Armed Forces can qualify for mortgages backed by the U.S. Department of Veterans Affairs (VA); in addition, surviving spouses of soldiers may also be eligible. To apply, consumers must obtain a Certificate of Eligibility from the VA by either applying online, through their selected lender or by mail. To qualify, individuals will need a statement of their military service and meet specific credit and income regulations. Loans are available for the purchase of a primary residence, and eligibility can be reused for additional loans provided the conditions of the original loan were met with satisfaction.