When it comes to mortgages, there is a clear distinction between conventional loans and government-backed loans. Government-backed mortgages are loans that are insured or guaranteed by a federal agency, such as the Department of Agriculture (USDA) or Department of Veterans Affairs (VA). These types of loans are considered non-compliant, meaning they don't meet the standards set by Fannie Mae and Freddie Mac. Each type of government loan has its own set of requirements. You may be eligible for a mortgage backed by the Federal Housing Administration (FHA), which is part of the U.
S. Department of Housing and Urban Development, the United States Department of Agriculture, or the United States Department of Veterans Affairs. These loans are not direct loans, so you don't apply for them directly through the government agency, but through a private mortgage lender that offers FHA, VA, or USDA loans. One of the biggest advantages of obtaining a federally backed mortgage is that they often have different requirements for down payment and minimum credit qualifications. For example, an FHA loan requires a lower credit score and down payment than a conventional loan.
However, you will need to pay a mortgage insurance premium in advance, which usually amounts to 1.75% of the total loan value, followed by monthly mortgage insurance payments. The Home Equity Conversion Mortgage (HECM) is another type of government-backed loan that is commonly used as a reverse mortgage option for people age 62 and older. To qualify for this loan, borrowers must complete a HUD-approved reverse mortgage counseling session and undergo a financial evaluation. If you're thinking about applying for a government-backed mortgage loan, make sure you do your research and prepare accordingly. Knowing what type of loan you need and what requirements you must meet can help you make an informed decision.