FHA loan applicationDoes a 10 or 20 percent down payment on a home feel too high to you? Does your credit score have room for improvement? Have you served in the U.S. military? Would you like to buy a modest home in the countryside? If you said “yes” to any of those questions (and perhaps even if you said “no”), a government loan might be a great option for your home purchase. Here’s what you need to know about buying a home with this category of mortgage.


What are government loans?

In the mortgage world, government loans (also known as non-conventional loans) are mortgages that are backed by the U.S. government. These include FHA, VA and USDA loans, which correspond to the Federal Housing Administration, U.S. Department of Veterans Affairs and U.S. Department of Agriculture. Loans without government backing are called conventional or non-government loans.

The government itself does not provide government loans directly to consumers. Borrowers obtain government loans through approved mortgage lenders.


When might you want a government loan?

The primary advantages of government loans are that they generally offer lower credit score and down payment requirements than conventional loans. This makes government loans particularly useful for those with lower credit scores or smaller savings. Qualified gift funds can also be used for the down payments and closing costs on government loans.

However, government loans often include some restrictions that may not be present on conventional loans (see below). Also, FHA, VA and USDA loans can only be used for properties that will be occupied as primary residences.


What are FHA loans?

FHA loans are the government loans that are available to the widest number of people. They are not tied to military service (like VA loans) or limited to certain geographic regions and borrower incomes (like USDA loans). However, FHA loans come with the additional monthly cost of mortgage insurance premiums, which can’t be removed unless the loans are paid off or refinanced. To qualify for FHA financing, properties must meet certain minimum requirements, and condos must be FHA-approved.

  • Minimum down payment: 3.5 percent
  • Minimum FICO credit score: varies by lender (580 at Draper and Kramer Mortgage Corp.)
  • Income limits: none
  • Maximum loan amount: varies by geographic area
  • Monthly mortgage insurance premium requirement: required
  • Special property requirements: must meet FHA minimum property requirements


VA loans

VA loans are available to borrowers in connection with military service. This includes active duty military, honorably discharged military, National Guard Reserves and spouses of service members who died while in service or from service-connected disabilities.

There are two major benefits of VA loans: they don’t require any down payment, and they don’t require the additional expense of mortgage insurance premiums.

VA borrowers are required to pay a VA funding fee, and some loan providers charge an additional lender origination fee. Draper and Kramer Mortgage Corp. charges no VA lender fees, and we allow the VA funding fee to be financed into the loan, allowing for a truly no money down VA loan.

Properties financed with VA loans must meet VA minimum property requirements, and condos must be in VA-approved projects.

  • Minimum down payment: none
  • Minimum FICO credit score: varies by lender (580 at Draper and Kramer Mortgage Corp.)
  • Income limits: none
  • Maximum loan amount: varies by geographic area
  • Monthly mortgage insurance premium requirement: none
  • Special property requirements: must meet VA minimum property requirements


What are USDA loans?

Also known as Rural Housing loans, USDA loans are available for eligible properties in rural areas and some suburbs. Like VA loans, USDA loans have the big benefit of no down payment or mortgage insurance premium requirements. However, there is an upfront loan guarantee fee of 1 percent of the loan amount (which can be financed into the loan) and an annual fee of 0.35 percent of the loan amount (paid in monthly installments). Unlike with FHA or VA loans, however, borrowers must be below a certain maximum income limit for each county. USDA-financed properties must also meet specific USDA property eligibility requirements.

  • Minimum down payment: none
  • Minimum FICO credit score: varies by lender (620 at Draper and Kramer Mortgage Corp.)
  • Income limits: varies by county
  • Maximum loan amount: varies by county, see map (PDF)
  • Monthly mortgage insurance premium requirement: none
    Special property requirements: must be an eligible address and meet other USDA property eligibility requirements


Conclusion

Government loans are a popular tool for many Americans to achieve homeownership. As an approved FHA, VA and USDA lender, Draper and Kramer Mortgage Corp. can help you explore these options for your own home financing needs. Contact us if you’d like to learn more!

Draper and Kramer Mortgage Corp. loan programs included in this article are subject to change and require approval based on individual program guidelines and borrower’s credit and underwriting approval.

All VA loan borrowers are required to provide Draper and Kramer Mortgage Corp. with a Certificate of Eligibility (COE) to confirm eligibility. There are different requirements for the COEs for each category of eligible VA borrowers. Draper and Kramer Mortgage Corp. can help borrowers obtain the necessary COE.

Draper and Kramer Mortgage Corp. is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the U.S. Department of Housing and Urban Development, U.S. Department of Veterans Affairs, the U.S. Department of Agriculture or any other government agency.

Contact your Draper and Kramer Mortgage Corp. representative for full details.

  • By: Draper and Kramer Mortgage Corp.
  • In: Mortgage
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