There are a few government agencies that also provide housing loans to people. It is estimated that about 20% of residential mortgages are funded by one government agency or the other. These loans are referred to as government housing loans or as conventional housing loans.
Here is a quick summary of the different types of loans that you can get from the government for your housing needs:
Federal Housing Administration, FHA
The Federal housing administration was established in 1934 in the thick of the great depression. The purpose was to stimulate the housing market. It helps the low to moderate income people get mortgages by issuing federal insurance against loss to the lenders who made FHA loans. FHA itself is not a loan lender. It only ensures the mortgage loans given out by approved FHA lenders. The FHA has seen varying levels of popularity at different points of time. FHA was not very popular in the early 2000’s when the loan limits set by FHA were less than what people were borrowing to buy escalated and inflated properties during the boom time.
Also the process was considered to be slower and more cumbersome than nonconventional mortgages that were being given to almost anyone who cared to apply for one. However, this scenario has now changed because of several reasons. Some of the reasons why FHA loans may be gaining in popularity is that they give out mortgage loans at lower down payments, your interest rate that is usually lower and FHA is less stringent about credit checks as compared to non-conventional home loan lenders in today’s time and date. Also, keen effort has been made to make the FHA mortgage approval process more streamlined. The result is quicker application processing and approvals. In fact the Streamlined FHA Refinance program has been designed to make the refinancing with FHA almost paperwork free.
We have discussed FHA in great detail in another section. So if you are looking for more information on FHA home loans headed straight over there.
Department of Veterans Affairs, VA
Congress passed the Serviceman’s Readjustment Act, commonly known as the G.I. Bill Of Rights, in 1944. One of the provisions of this bill enables the VA to help eligible people on active duty and veterans to buy family residences. Like the FHA the VA only guarantees the loan granted by conventional lending institution that participate in the VA mortgage programs.
Farmers Home Administration, FmHA
Just like the other government housing agencies such as the FHA and VA, the FmHA isn’t a direct lender as well. In spite of its name you do not have to be a farmer to get a Farmers Home Administration loan. You do however have to buy a home in the outskirts in an area which will qualify to be a farmland. The FmHA also ensures the mortgage granted by participating lenders to qualified buyers who live in rural areas.
All of these government housing programs have attractive features. FHA, VA and FmHA have less strict requirements in terms of down payment, loan terms, loan penalties and even interest rate. A person who cannot afford to make a large down payment can take advantage of an FHA loan. VA loans are also assumable.
In spite of the advantages a majority of the people choose nonconventional loans to fund their purchases. This is because government hormones are not for everyone and are targeted for specific types of home buyers. 1st of all, there are not as many FHA or VA mortgage lenders as there are nonconventional ones. For this reason you may find it easier to get a home loan from your own bank rather than go looking for an FHA lender specifically.
There is a limit on the amount you can borrow on an FHA loan and although this limit has been greatly increased in recent past, many people can still find it limiting. However government home loans can still take longer than a nonconventional home loan. In a situation where homes generate multiple offers, using government loans almost always goes to people utilizing conventional mortgages that can be funded quicker.