Government-backed loan are insured by government agencies. When lenders talk about government-backed loans, they are referring to three types of loans: FHA, VA, and USDA loans.
These loans are less risky for lenders because the insuring body foots the bill if you should default on your mortgage. You may qualify for a government-backed loan if you are unable to get a conventional loan.

Each government-backed loan has specific criteria you need to meet in order to qualify along with unique benefits, but you may be able to save on interest or down payment requirements, depending on your eligibility.

 

FHA Loans

FHA loans are insured by the Federal Housing Administration. An FHA loan can allow you to buy a home with a credit score as low as 580 and a down payment of 3.5%. With an FHA loan, you may be able to buy a home with a credit score as low as 500 if you pay at least 10% down.

 

VA Loans

VA loans are insured by the Department of Veterans Affairs. A VA loan can allow you to buy a home with $0 down and lower interest rates than most other types of loans. You must meet service requirements in the Armed Forces or National Guard to qualify for a VA loan.

USDA Loans

USA loans are insured by the United States Department of Agriculture. USDA loans have lower mortgage insurance requirements than FHA loans and can allow you to buy a home with no money down. You must meet income requirements and buy a home in a suburban or rural area in order to qualify for a USDA loan.
 

Pros Of Government-Backed Loans:

• It is possible to save on interest and down payments, which could mean reduced closing costs.
• There are less strict qualification requirements than conventional loans.

 

Cons Of Government-Backed Loans:

• You must meet specific criteria to qualify.
• Many types of government-backed loans have insurance premiums (also called funding fees) that are required upfront (can be paid at closing or included in the loan), which can result in higher borrowing costs.

 

Home Buyers Who Might Benefit:

• Those who do not qualify for conventional loans or have low cash savings.