The mortgage process may sometimes seem like a maze of terms, acronyms and abbreviations that make your head spin, but armed with a little information, you can figure out which mortgage is the right one for you.
If you’ve been researching buying a home or refinancing your existing mortgage, you may have come across one of those potentially confusing terms: government-insured mortgage.
What is a Government-Insured Mortgage?
A government-insured mortgage is just what it sounds like: a mortgage loan that is insured by the government. Government-insured mortgages are sometimes referred to as government-backed mortgages, but the definition is the same. It means that the mortgage is backed by the government.
The government doesn’t issue the mortgage or lend the money directly to borrowers. The loan is originated (or funded) by a mortgage company. The loan is then insured (or guaranteed) by the government.
The purpose of the government backing loans is to ensure that certain borrowers who may not be able to obtain a conventional mortgage for various reasons have access to mortgage credit and are therefore able to buy a home.
Government-insured mortgages offer a significant number of advantages, including lower down payment requirements than conventional mortgages, but a government-insured mortgage is not necessarily the best option for each borrower.
There are a few types of government-insured mortgages, each of which is backed by a separate agency or department of the government. Let’s explore each kind of government-backed loan.
What are the types of Government-Insured Mortgages?
The most popular type of government-insured mortgage is an FHA loan, which are mortgages backed by the Federal Housing Administration. The FHA is a part of the Department of Housing and Urban Development.
FHA loans are insured by the government, allowing borrowers who may not be able to qualify for a conventional home loan to buy a home.
The requirements for an FHA loan differ for individual loan types but do require as little as a 3.5% down payment on a home purchase loan. FHA loans can be a good choice for people buying their first house, people with a lower credit score, or those with a challenging credit history. One thing to note: FHA loans require both an upfront payment for mortgage insurance and separate monthly mortgage insurance payments for as long as the life of the loan, depending on the loan-to-value ratio.
To learn more about FHA loans, click here.
What is the other type of Government-Insured Mortgage?
The next most popular type of government-backed loan is a VA loan, which is backed by the Department of Veterans Affairs. But VA loans are not for everyone. In fact, VA loans are only available to active duty military personnel, veteran service members, and certain military spouses. For borrowers that qualify, VA loans carry significant benefits, including lower interest rates, no required down payment, and no monthly mortgage insurance premiums.
To learn more about VA loans, click here.
Choose the loan that’s right for you
For many borrowers, a government-insured mortgage is a smart choice. But they’re not for everyone. Consider your options, ask for help if necessary, and make the best decision for you.
Request a quote through our website or contact a New American Funding loan officer to find out which loan is the right one for you.