Stop Overpaying For Your Home With These 4 Government Loan Programs

The government has several home loan programs to help American families become home owners. The loans come from participating conventional lenders, but are partly guaranteed or insured by the government, giving lenders the confidence to lend to more people.

Federal Housing Administration (FHA) Loans

These are the most popular and widely used loans, especially with first-time buyers. The government essentially insures the loan, so that the risk to the lender is reduced if you default. This means that your credit-worthiness is less important than it would be with a normal commercial mortgage. You can make a down payment as small as 3.5% and you may also be eligible for a tax credit of up to $8,000, depending on whether you are a first-time buyer or previous owner. The FHA also allows seller concessions of up to 6% on the purchase price.

USDA Loans

These loans are for properties in eligible rural development areas. They can offer 100% financing for a home, but you must occupy it as your main residence and also meet credit, income, employment and citizenship requirements.

Veterans Loans

Veterans Loans are guaranteed by the government and can be used to buy or build a new home, a condo, a cooperative housing unit or manufactured home. They can also be used to repair or alter a home occupied by a veteran.

The loan is taken out through a conventional lender such as a bank or credit union and VA guarantee to pay 25 to 50% of the loan amount if the borrower defaults. The VA only covers loan defaults up to $105,000 currently but no down payment is required and there are no prepayment penalties. Housing adaptation assistance for veterans with certain disabilities is also available.

FHA Reverse Mortgage

An FHA Reverse Mortgage allows you to release some of the equity in your home by way of lump sum, provided you are 62 years or older. You do not have to make any monthly repayments and the loan is collected together with interest when you sell or leave the property. Sometimes the loan can be transferred to another property and it is designed for those near retirement who need the extra cash. The loan is insured by the government, encouraging more competitive terms from lenders. However, when the lender eventually collects the interest from the remaining equity in your home, the cost of borrowing may well equate to more than a conventional loan. What can be left to loved ones may well be substantially reduced or extinguished altogether. It is however, a convenient way to raise a lump sum, particularly as other avenues may not be available.