Real Estate News

The Three Government-Backed Home Loan Programs


Written By: David Reed
Monday, November 26, 2018

VA Loans

VA loans are available to a select group of borrowers. Those borrowers are veterans, active duty personnel with at least 181 days of service, National Guard and Armed Forces Reserve members with at least six years of service and un-remarried surviving spouses of those who have died while serving, or as a result of a service->

FHA Loans

FHA loans have no such restrictions as to eligibility. FHA loans are under the auspices of the Department of Housing and Urban Development, or HUD, and also carry a guarantee to the lender. Should an FHA loan go into default, the lender is compensated for the loss. This compensation is financed with two separate forms of mortgage insurance: an upfront mortgage insurance premium and an annual premium paid in monthly installments. These two fees have varied over the years but today the upfront premium for FHA loans is 1.75 percent of the loan amount when the minimum down payment of 3.5 percent is made and 0.85 percent of the loan amount for the annual premium. The upfront premium is also rolled into the final loan amount.

USDA Loans

The USDA loan is the last of the three government-backed programs and is designed to finance properties located in rural and semi-rural areas. The USDA program is also a zero-down loan and offers a 30 year fixed rate program. There are income limitations with the program and is also dependent upon the number of people living in the household. This program is considered a moderate income program limiting household income to 115 percent of the median income for the area. Properties must also be located in a previously approved geographical area.

Lastly, all three of these programs are designed to finance a primary residence and cannot be used to finance a second home or rental property.



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