1%off

Get 1% off your mortgage rate for 1 year when buying a home with Inflation Buster.

MoneyTips with Rocket Mortgage NMLS #3030

1%off

Get 1% off your mortgage rate for 1 year when buying a home with Inflation Buster.

MoneyTips with Rocket Mortgage NMLS #3030
Woman working on laptop

Government Home Loans and More: A MoneyTips Guide for First-Time Borrowers

TLDR

What You Need To Know

  • There are three main government mortgage loan programs: Federal Housing Administration (FHA) loans, Department of Veterans Affairs (VA) loans and U.S. Department of Agriculture (USDA) loans
  • You can get a federal home loan through approved private lenders like banks, credit unions and online lenders
  • FHA loans have easier qualification requirements than traditional real estate mortgages, especially for low-income borrowers, including lower credit score and down payment requirements

Contents

See what mortgage you qualify for

NMLS #3030

*See what you qualify for

We teamed up with Rocket Mortgage to help you get house-hunting sooner! Answer a few questions to get your commitment-free, personalized rate 💸

Get Started by selecting an option below

What kind of loan are you interested in?

What to expect

Tell us what you need and a representative from Rocket Mortgage will give you a call. You’ll have support at every step.

What kind of property do you want to purchase? What kind of property do you own?

Why we’re asking

Rocket Mortgage® can provide a more accurate rate estimate if they know what kind of property you’re interested in.

NMLS #3030
How do you use your property? How would you use this property?

Why we’re asking

Having a little more information upfront helps Rocket Mortgage® provide a personalized rate faster.

NMLS #3030
When are you planning to buy?

Still House Hunting?

Hope you find your dream home soon! In the meantime, it’s never too early to know your rate.

NMLS #3030
Are you a first-time home buyer?

It’s all good:

Whether it’s your first – or second property – Rocket Mortgage® can provide you with a rate estimate.

NMLS #3030
Do you have a second mortgage?

It’s all good

If you have a second mortgage, it’s no problem. Letting us know helps to customize your rate.

NMLS #3030
What is your credit score?

Don’t know your score?

Don’t sweat it! Make your best guess. Credit scores range from 300 (low) to 850 (excellent).

NMLS #3030

Enter your contact info to get your rate

What happens next?

A representative from Rocket Mortgage® will be in touch to discuss your commitment-free, personalized rate. Then you can decide whether you’d like to lock it in!

NMLS #3030
Your information has been sent!

A home loan expert from Rocket Mortgage® will reach out to you soon with your personalized rate.

Your information has been sent!

A refinance expert from Rocket Mortgage® will reach out to you soon with your personalized rate.

In the meantime…

Explore our money-making (and money-saving) resources.

Buying a home can be challenging, especially if you’re struggling to save enough for a down payment or your credit score is less than ideal. Fortunately, you may be able to clear those hurdles with the help of government home loans.

Government-backed loans have helped millions of aspiring home buyers unlock the door to homeownership. Learn how they might do the same for you, too.

What Are Government Home Loans?

Government home loans are backed by … you guessed it: the United States federal government (aka Uncle Sam). The federal government (through designated federal agencies) agrees to guarantee or “back” loans in case you default or can’t make your monthly payments.

You can get a federal home loan through approved private lenders like banks, credit unions and online lenders.

What Kinds of Government Home Loans Are Available?

There are three main government mortgage loan programs: Federal Housing Administration (FHA) loans, Department of Veterans Affairs (VA) loans and U.S. Department of Agriculture (USDA) loans.

FHA loan

A Federal Housing Administration (FHA) loan is a mortgage insured by the FHA.

PROS of FHA Loans👍

Easier to qualify

FHA loans have easier qualification requirements than traditional real estate mortgages, especially for low-income borrowers, including lower credit score and down payment requirements. In fact, you can get an FHA loan with as little as 3.5% down.[1]

Flexibility

The loans have more flexible terms, including the ability to add renovation costs to your loan.

Lenders more willing to work with you

Because the loans are backed by the federal government, mortgage lenders are more inclined to work with home buyers who have a less-than-perfect credit history.

CONS of FHA Loans👎

MIP

You’ll pay a monthly mortgage insurance premium (MIP) for the life of the loan if you put down less than 20%.

Loan limits

Loan limits may make it difficult to find a home that fits your budget if you live in a high-cost area.

Slower process

An FHA loan may put you at a disadvantage when you’re bidding against buyers who aren’t facing the potential delays that can come with FHA loans.

VA loan 

A Department of Veterans Affairs (VA) loan is a mortgage insured by the VA.

PROS of VA Loans👍

No down payment

Home buyers don’t have to worry about one of the biggest hurdles to homeownership because no down payment is required.

No mortgage insurance

Borrowers do not have to pay MIP.

Lenders more willing to work with you

VA backing can make lenders more comfortable offering more favorable loan terms with less stringent qualification requirements.

CONS of VA Loans👎

Military requirements

To be eligible for a VA loan, you must be a qualified veteran, active-duty service member, reservist, National Guard member or surviving spouse. Borrowers must prove they completed their service in good standing and must agree to occupy the home as their primary residence.

Funding fee

Borrowers may pay a funding fee – though the fee can be rolled into the loan.

USDA loan 

A U.S. Department of Agriculture (USDA) loan is a mortgage insured by the USDA for home buyers who want to purchase homes in rural areas.

PROS of USDA Loans👍

Little or no down payment

Borrowers will often qualify for up to 100% financing. There may be little or no down payment required.

No MIP

USDA loans do not require MIP – even if you don’t make a sizable down payment.

Low interest rates

USDA loans have lower interest rates than loans that are not backed by the government.

Lenders more willing to work with you

Lenders often like federally-backed loans, because the lender’s risk is lowered. This may make them more willing to work with borrowers with credit issues.

CONS of USDA Loans👎

Income limits

The USDA’s qualifying income limits may exclude some borrowers.

Only certain types of homes qualify

USDA loans can only be used for certain types of homes. If your dream home doesn’t meet the USDA’s requirements, you won’t be able to use a USDA loan.

Hard to find eligible homes in populated areas

City and suburb dwellers will need to give up cities and suburbs. The loans only work in areas that meet the USDA’s property eligibility guidelines.

Why Should You Consider a Government Home Loan?

Government loans offer many benefits – especially for first-time home buyers with higher levels of debt or buyers who are house hunting while prices are high.

Lower credit score requirements

Most conventional lenders require a minimum credit score of 620 to qualify for a home loan.[2] Government-backed loans make it possible to qualify for a home loan with a credit score of 500.[3]

Higher debt-to-income (DTI) ratio allowed

Conventional lenders prefer DTIs of 36% or lower but may consider a DTI as high as 50%. Government-backed loans accept DTIs as high as 57%.

Flexibility with past credit problems

If you have a bankruptcy on your credit report, a conventional lender may require you to wait 4 or more years before you can apply for a mortgage. With a government loan, the wait can be as short as a year.

First-time home buyer programs

Borrowers who have opted for government-backed loans can take advantage of state and local first-time home buyer programs that provide home buying education and resources. Borrowers can also take advantage of down payment assistance programs and closing cost assistance programs.

Using gift money for down payment assistance

Conventional loans allow you to use gift money from your family, domestic partner or spouse for a down payment.

Government-backed loans also allow you to receive down payment assistance from labor unions and employers, your state housing finance authority, charities and community organizations.

Can You Renovate or Rehab With a Government Loan?

The federal government offers options to rehab a home you plan on buying, renovate your current home or upgrade after you purchase.

FHA 203(k) loans

FHA 203(k) loans allow you to borrow more than your home loan amount, as long as the additional funds are used for home improvements. You can use FHA 203(k) loans to purchase homes or refinance loans. And they can be used for single-family homes or multiunit properties.

To qualify for an FHA 203(k) loan, you’ll need to meet the same qualifications you’d need to meet for a standard FHA loan.

FHA and VA energy-efficient loans

Both FHA and VA home loans can be used for energy-efficiency upgrades. The FHA’s Energy-Efficient Mortgage (EEM) program allows you to borrow more money than your principal mortgage amount for upgrades like insulation, a new roof or energy-efficient windows. The VA’s Energy-Efficiency Loan (EEL) program also provides funds for energy-efficiency upgrades.

To qualify for the FHA’s EEM, you’ll need to meet the same qualifications you’d need to meet for a standard FHA loan. As for the VA’s EEL, you’ll need to be a qualifying service member, veteran or surviving spouse and meet the requirements for a VA loan.

Buying a Home With Uncle Sam

Depending on your situation, a government loan could make it easier to successfully make a home purchase. Government loans also qualify for temporary mortgage rate buydowns which can lower your interest rate at the start of your loan, helping you save on your monthly payments.

And you don’t have to run around to each government agency either. You may be able to explore all of your loan options with the same lender or mortgage broker. They can help you decide which loans you qualify for and which options are the best for your home buying journey.

  1. U.S. Department of Housing and Urban Development. “Let FHA Loans Help You.” Retrieved July 2022 from https://www.hud.gov/buying/loans

  2. Fannie Mae. “Eligibility Matrix.” Retrieved July 2022 from https://singlefamily.fanniemae.com/media/20786/display

  3. U.S. Department of Housing and Urban Development. “Borrower Eligibility Requirements.” Retrieved July 2022 from https://www.hud.gov/sites/documents/4155-1_4_SECA.PDF

ICYMI

In Case You Missed It

  1. Most government loan programs offer options to help you renovate your home or rehab a home you plan on buying

  2. FHA borrowers must pay mortgage insurance premiums (MIPs) on FHA home loans regardless of the size of their down payment

  3. There are first-time home buyer programs at the state and local levels for borrowers using government-backed loans

1%off

Make home happen. Beat inflation, on us.

Save 1% on your mortgage rate for a year when you buy a home with Inflation Buster.

MoneyTips with Rocket Mortgage NMLS #3030

You Should Also Check Out…