Types of Home Mortgages: Government Home Loans

Basic Government Home Loan Options

The primary government home loans are the FHA and VA mortgage loans. However, this does not mean those government offices actually provide the loans. What they do is offer security for lenders to loan money to homebuyers through a provision to pay them if the buyer defaults. This makes home ownership available for many people who would not normally be able to afford the down payments or monthly payments of the traditional conventional mortgages.

The FHA Home Loan

One such government loan, the FHA, is directly competitive with the conventional loan market, usually only at a fraction of a percent higher in interest rate. This government home loan provides insurance against a buyer’s default, and the buyer pays a premium for this insurance, usually a very small percentage of the loan amount. This amount can be financed into the loan, although it will make payments a little higher. The FHA is also a little more open about bad credit and using alternative credit references, making home ownership available to people who have had bankruptcies and other misfortunes befall them. See www.hud.gov for more details.

The VA Home Loan

The VA is another type of government loan, but again, it is not money provided by the government. This loan is guaranteed by the VA instead of insured like the FHA loan, although the result is the same—people who normally might not be able to afford a home can buy one comfortably. Often with a VA loan there is no down payment requirement, and there is a limit to the interest rate lenders can charge on a VA loan. The VA loan is meant for members of the armed forces with certain provisions (see www.homeloans.va.gov for information on eleigibility, etc.), and processing these loans has become easier and faster over the years. Some of the old appraisal restrictions have been lifted, so that veterans and servicepersons can purchase homes with a price higher than the VA appraised value by paying the difference in the appraisal and the contract price.

Private Home Loan Mortgage Options

The private mortgages, or conventional, are not backed by government guarantees and often require high down payments. Although the interest rate is generally lower for a conventional loan than an FHA, the difference is very small. Often the loans can’t exceed 75% of the lower of the purchase price or appraised value. Contrast this with the low down payment of the FHA loan or the no down payment of the VA loan and you can see how the FHA and VA have helped many more people own homes who would normally have not been able to.