Government Mortgages Loan

Government loans are simply mortgage loans that are insured or guaranteed by the federal government. They are most typically fixed rate or adjustable rate mortgages. Government loans account for 20% of all mortgage loans. There are three types of government mortgages.

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FHA Loans
The Federal Housing Authority (FHA) is part of the U.S. Department of Housing and Urban Development (HUD). The FHA does not actually lend money to borrowers. What the FHA does is insure loans (called 203(b) Mortgage Insurance) so that they are shielding lenders from loss should a borrower default on the loan. This effectively reduces the lender's risk allowing them to provide easier qualification for a loan, lower down payments, and lower closing costs. So an FHA Loan is a loan made by a lender that is insured by the FHA.

Features of FHA Loans
FHA loans are an excellent vehicle for the first-time home buyer. FHA loans are available as fixed rate mortgages (FRMs) and adjustable rate mortgages (ARMs). Some of the features of an FHA loan include:

• Available for 1 to 4 unit properties, as well as condominiums and manufactured homes
• Less stringent qualifying requirements
• Down payments can be as low as 3% (or 97% loan-to-value)
• FHA regulates closing costs
• Most closing costs and fees can be included in the loan
• Gifts for down payments and closing costs are allowed
• Will allow a home purchase two years after a bankruptcy
• Will allow a home purchase three years after a foreclosure

Qualifying for an FHA Loan
Because an FHA loan is insured by the FHA, many of the qualification criteria are not as stringent as they would be. The borrower does, however, have to be able to afford the loan. For that reason, a borrower's monthly housing costs should not exceed 29% of their monthly income (this is some times referred to as the housing ration). Remember that total housing costs include mortgage principal and interest, property taxes, and homeowner's insurance (often referred to as PITI).

In addition, a borrower's monthly expense to to cover all debt, home and consumer debt (car loans, personal loans, student loans, credit cards, etc.) should not exceed 41% of their monthly income.

To obtain an FHA loan, individuals need to apply to a HUD approved lender.

FHA Loan Limits
FHA loan limits vary by location. It should be noted, however, that FHA loans are oriented toward lower-income borrowers. As such, the FHA loan limits make an FHA loan appropriate only for lower cost homes. For example, the FHA loan limits for a couple of sample cities are:

               Boston,     MA Wichita, KS
1-Family   $362,790   $200,160
2-Family   $461,113   $256,248
3-Family   $560,231   $309,744
4-Family   $646,421   $384,936

To look up the FHA loan limits in your area see: https://entp.hud.gov/idapp/html/hicostlook.cfm

Other HUD Loan Programs
HUD also has other specialized programs to help certain identified groups purchase a home. These programs include:

• Firefighter/Emergency Medical Technician NextDoor
• Officer Next Door (law enforcement officers)
• Teacher Next Door
• Hurricane Evacuees discounted sales
• Homeownership for public housing residents
• Indian Home Loan Guarantee Program

For More Help
To get more advice on FHA and other HUD loan programs, contact a HUD-approved housing counselor or call (800) 569-4287.

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HCFP Loans
The United States Department of Agriculture (USDA) provides loans and grants to individuals and rural communities for housing and community facilities though Housing and Community Facilities Programs (HCFP). HCFP provides funding for single family homes, apartments for low-income persons or the elderly, housing for farm laborers, as well as funding for community facilities such as childcare centers, fire and police stations, hospitals, libraries, nursing homes, schools, and more.

Housing and Community Facilities Programs for Individuals
Housing and Community Facilities Programs are available for:

• Single family housing for rural Americans
• Home renovations and repair
• Rental assistance programs for the elderly, disabled, or low-income rural residents of multi-family housing

The remainder of this article will focus on the home ownership and renovation programs.

HCFP Direct Loan Program
The Direct Loan Program makes assistance available to individuals or families in the form of a home loan at an affordable interest rate. Most borrowers have an income level below 80% of the median income for the community in which they live (see here for the income limits on the Direct Loan Program for single family homes). There are also loan limits for loans made under the Direct Loan Program that vary by community (see here for the loan limits for the Direct Loan Program).

More information on the Direct Loan Program may be found on the USDA Rural Development Housing & Community Facilities Programs site: http://www.rurdev.usda.gov/rhs/sfh/brief_rhdirect.htm

HCFP Loan Guarantee Program
Under this program HCFP guarantees loans made by private lenders, similar to FHA or VA loans. With the HCFP Loan Guarantee Program, a borrower may borrow up to 100% of the appraised value of the home (100% LTV). Borrowers may have up to 115% of the median income for their area (see here for income limits)

More information on the Loan Guarantee Program may be found on the USDA Rural Development Housing & Community Facilities Programs site: http://www.rurdev.usda.gov/rhs/sfh/brief_rhguar.htm

HCFP Mutual Self-Help Housing Program
This program helps very-low- (50 percent of the area median income) and low-income (between 50 and 80 percent of area median income) individuals or families to construct their own home. Borrowers participating in a HCFP mutual self-help project perform approximately 65 percent of the construction on each other's homes under qualified supervision.

More information on the Mutual Self-Help Housing Program may be found on the USDA Rural Development Housing & Community Facilities Programs site: http://www.rurdev.usda.gov/rhs/sfh/brief_selfhelpsite.htm

HCFP Home Repair Loan and Grant Program
HCFP offers loans and grants for home renovation to very-low-income individuals or families who own their own home. Loans made under this program are 1% loans that may be repaid over a 20-year period.

More information on the Mutual Self-Help Housing Program may be found on the USDA Rural Development Housing & Community Facilities Programs site: http://www.rurdev.usda.gov/rhs/sfh/brief_repairloan.htm

Rural Development Real Estate for Sale
Rural Development real estate for sale includes:

• Government owned real estate and potential foreclosure sales for single family homes (SFH)
• Government owned real estate and potential foreclosure sales for multi-family housing

More information on the Rural Development real estate for sale may be found on the USDA Rural Development Real Estate for Sale site: http://www.resales.usda.gov/

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VA Loans
Since its inception in 1944, the VA loan program has been intended to provide a benefit to veterans for their service to the United States. Similar to FHA loans, VA Loans are not loans that are made by the Department of Veterans Affairs. A VA Loan is a loan that is partially guaranteed by the VA allowing for some very favorable loan features for veterans.

VA Loans are available from lenders who participate in the VA Home Loan program.

Features of VA Loans
VA Loans are available as the following types of loans:

• Traditional fixed rate mortgages (FRMs)
• Graduated payment mortgages (GPMs) whose payments start low and gradually rise to a level payment in the loan's sixth year
• Hybrid adjustable rate mortgages (ARMs) where the initial fixed rate period is at least 3 years
• Traditional adjustable rate mortgages
• In some areas, Growing Equity Mortgages (GEMs) where gradually increasing payments are applied to the principal, resulting in an earlier payoff of the loan

Some of the attractive features of VA Loans include:

• Available for purchasing a home, a unit in a VA-approved condominium, building a home, for home improvements, to refinance an existing home loan up to 90 percent of the VA-established reasonable value, to purchase a manufactured home and/or lot
• No down payment requirements (may finance up to 100% of the cost of the home)
• Limitations on closing costs
• No private mortgage insurance (PMI)
• Will allow a home purchase two years after a bankruptcy
• Will allow a home purchase three years after a foreclosure
• Default assistance to avoid foreclosure
• Mortgage assumability subject to VA approval of the assumer's credit
• No prepayment penalties
• The VA performs loan servicing and offers financial counseling to help veterans avoid losing their homes during financial difficulties

Qualifying for VA Loan
According to the VA, more than 27 million veterans are eligible for VA Loans. Qualifying for a VA Loan is relatively straight forward. The eligibility requirements are:

• The applicant must be an eligible veteran who has available home loan entitlement. The rules of eligibility require some minimum number of days of active duty which vary depending on whether or not the duty was during wartime or peacetime. Visit the VA's General Rules for Eligibility to determine your eligibility. Please note that certain categories of spouses may be eligible for VA Loans, such as the spouse of a veteran who died while in service or from a service connected disability.
• The loan must be for an eligible purpose.
• The property must be owner-occupied by the veteran within a reasonable period of time after closing the loan.
• The veteran must have reasonable credit.
• The income of the veteran and his or her spouse must be sufficient to to cover housing expenses as well as other expense obligations.

The VA Loan Application Process
The process of applying for a VA Loan is also pretty straight forward. The first step is for the veteran to apply for a Certificate of Eligibility (COE). One may be obtained by completing VA Form 26-1880, Request for a Certificate of Eligibility, and sending it, along with proof of military service, to an eligibility center (see http://www.homeloans.va.gov/contact.htm for eligibility center locations and contact information). Proof of military service may be obtained using Standard Form 180, Request Pertaining to Military Records. Veterans may also ask any lender that they are working with to try and obtain a COE through ACE (Automated Certificate of Eligibility).

The next step is for the veteran to find a home that they wish to purchase and sign a purchase agreement. After that, the lender (usually) will order an appraisal from the VA. The formal mortgage application to the lender is the next step. Most loans are authorized on an automatic basis and are approved and closed upon receipt of the appraised value determination. After that it is time for the veteran to close the loan and move in to their new house.

VA Loan Limits
While there is no loan limit for VA Loans, lenders typically pay up to 4 times a Veteran's entitlement, which is $36,000, or 25% of the Fannie Mae/Freddie Mac loan limits in effect at the time for larger loan amounts. As of 2006, this effectively makes the upper VA Loan limit $417,000. Many lenders may have limitations of their own. VA Loans are typically 15 year or 30 year loans. The maximum VA Loan term is 30 years and 32 days.

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