Articles & Updates
Considering a Government Loan for Your Mortgage?
Your Community Bank Explains FHA, VA, and USDA Mortgages
If you’re considering buying a new house this year, your research will expand beyond finding your dream home to include investigating financing plans. You’ll have several types of real estate mortgage loans to evaluate, and each has unique features and benefits. In addition to a conventional fixed-rate or variable rate loan, you could be eligible for a government-backed, FHA, VA, or USDA mortgage.
Your Ohio-based community bank compiled facts you need to know to make an informed decision.
Overview of FHA Mortgages
The Federal Housing Administration (FHA) insures home loans that are ideal for first-time buyers or those with lower credit scores.
- Some lenders may approve an FHA mortgage for buyers with credit scores around 500 with a down payment of at least 10 percent.
- The FHA does require borrowers to carry mortgage insurance. You’ll need to pay the insurance premium as part of your closing costs and monthly payments, although you can include the initial payment in your loan amount. Insurance costs will link to the amount of your loan and your down payment.
- You can use funds received as gifts for your down payment and your closing costs.
- Your down payment must be at least 3.5 percent of the loan amount.
VA Mortgage Loans Explained
The Department of Veterans Affairs (VA) will guarantee a mortgage loan for homebuyers who are current military members or veterans (either directly or a spouse). National Guard and military reservists can also qualify.
- VA loans offer low-interest rates with no credit score requirements or minimum down payments.
- To apply for a VA loan, you must meet specific service requirements and provide personal information to get a Certificate of Eligibility.
- Mortgage loans backed by the VA don't need private mortgage insurance, but the VA does charge an upfront fee that you can include in your total loan amount.
- As with FHA loans, you can use gifted funds to cover all your down payment and closing costs.
- VA loans have no origination, processing, or underwriting fees.
Features of USDA Mortgage Loans
The U.S. Department of Agriculture (USDA) backs mortgages for buyers in rural areas who meet the agency's household income requirements.
- USDA loans, like VA mortgages, don't require a down payment.
- A wide range of properties in rural and suburban areas are eligible for USDA mortgages, with the population a key metric used to assess qualifications. For example, the USDA defines a rural area as one with less than 35,000 people. Your community bank team is a valuable resource since they understand the local housing market.
- As a borrower, you may qualify for financing up to 101 percent of the home value with a 30-year repayment term.
- The USDA does charge an upfront and annual guarantee fee for the life of the loan.
Which mortgage option is best for you? Talk with the lending team at Consumers National Bank to explore government-backed mortgage loans. We’ll help you find a solution that fits your budget so you can find your dream home.