Pen in hand

The federal government has many federal loan programs designed to actively encourage homeownership sponsored by the Federal Housing Administration (FHA) and the Veterans Administration (VA). While a broad range of Americans take their first journeys as homeowners using these real estate loans, they primarily help those with lower incomes.

The FHA sponsors – not makes – private loans. The most common FHA loan – the 203b – lets borrowers put down as little as 3.5 percent on the purchase of a one-to-four unit primary residence.

Found a house but it needs work? Consider the FHA 203k loan. This helps borrowers purchase and renovate a home using one easy loan. The FHA also sponsors home equity conversion mortgages, loans for victims of natural disasters, graduated payment mortgages and more. Keep in mind that not every home will qualify for an FHA loan, however – strict limits apply.

Nevertheless, qualifying for an FHA loan is easier than qualifying for a non-government-sponsored loan. Lenders regularly accept applicants with credit scores in the 600s, and smaller-than-normal down payment requirements mean many homeowners find these options attractive.

Like FHA loans, VA loans also help lower income families. Qualifying is more difficult because you have to have a Certificate of Eligibility which you can only earn by serving in the military. Some exceptions apply – for example, if you are the widow of a service member who died while on active duty.

Veterans that qualify may not have to put any money down at all, and they can reuse their veteran status multiple times – provided that they paid prior VA loans in part or in full.

Both programs typically offer interest rates below what the market dictates, but closing fees may be higher – although those can be financed into the loan instead of paid up front.

If you qualify, government backed loans offer borrowers tremendous benefits. Check with the FHA and VA for additional requirements.

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