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Mortgage 101: Government-Backed Loan Programs FHA-Backed Mortgages Overseen by the United States Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA) guarantees the repayment of its loans should the borrower default.
General Program Requirements Homebuyers can apply—if they intend to live in the home, are able to make the down payment, the monthly mortgage payments, and other eligibility and credit requirements are met. The down payment requirement is largely determined by your credit score. It could range from 3.5 percent to 10 percent of the home.
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Although FHA will insure loans for applicants with credit scores as low as 500, most lenders won't approve a score lower than 620. The FHA mandates borrowers with less than 20 percent down will pay a Mortgage Insurance Premium (MIP) every month. While private mortgage insurance is required by most lenders of borrowers in similar circumstances, the insurance can be cancelled in the future. MIP remains for the life of the loan. To apply for an FHA-backed mortgage, visit a FHA-approved lender. Find one near you at HUD.gov.
Rural Development Loan The United States Department of Agriculture (USDA) offers approved borrowers a no-down payment loan. Most refer to this as the "USDA loan," but the official title is the Rural Development Loan.
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As with anything government-related, however, there are strings attached. The most important of these is that both the property and the borrower must qualify. The USDA offers two Single Family Housing loan programs, a direct loan and a guaranteed loan.
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To qualify for the guaranteed loan, borrowers must meet income-eligibility, agree to live in the home full-time, be a U.S. Citizen, U.S. non-citizen national or Qualified Alien, prove they can make on-time payments, and purchase a property that meets the programs guidelines. Properties financed with the guaranteed loan program must be located in an "eligible area." You can find these areas online at HUD.gov.
VA Home Loans The U.S. Department of Veterans Affairs offers a home-loan guaranty benefit. The no-down payment loans are offered to active military members, veterans and their surviving spouses. Private lenders provide VA loans and the Department of Veterans Affairs guarantees the repayment of a portion of the loan should the veteran be unable to meet his obligation. Additional benefits of the VA-backed loan include no private mortgage insurance, the VA dictates borrower closing costs, and no prepayment penalty. Find out if you're eligible for a VA-backed loan at benefits.va.gov., you'll need a Certificate of Eligibility (COE) and you can get one online or your lender can obtain it for you. The best first step after learning your eligibility is to contact a lender.
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