The U.S. government isn’t a mortgage lender, but it does play a role in helping more Americans become homeowners. Three government agencies back loans: the Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans) and the U.S. Department of Veterans Affairs (VA loans).
FHA loans: Backed by the FHA, these loans help make homeownership possible for borrowers who don’t have a large down payment saved up and don’t have pristine credit. Borrowers need a minimum FICO score of 580 to get FHA’s maximum 3.5 percent financing. However, a credit score of 500 is accepted with at least 10 percent down. FHA loans require two mortgage insurance premiums: one is paid upfront, and the other is paid annually for the life of the loan if you put less than 10 percent down. This can increase the overall cost of your mortgage.
Read more about among mortgage borrowers.
VA loans: VA loans provide flexible, low-interest mortgages for members of the U.S. military (active duty and veterans) and their families. VA loans do not require a down payment or PMI, and closing costs are generally capped and may be paid by the seller. A funding fee is charged on VA loans as a percentage of the loan amount to help offset the program’s cost to taxpayers. This fee, as well as other closing costs, can be rolled into most VA loans or paid upfront at closing.
USDA loans: USDA loans help moderate- to low-income borrowers buy homes in rural areas. You must purchase a home in a USDA-eligible area and meet certain income limits to qualify. Some USDA loans do not require a down payment for eligible borrowers with low incomes.