Government Mortgages Versus Conventional Lending Guidelines
This Article Is About An Introduction To Government Mortgages And Lending Guidelines:
Government-backed loans are owner-occupant primary home mortgages originated by private lenders like banks, mortgage brokers, and mortgage bankers but backed by a federal government agency.. The government agency will partially guarantee the loss taken by lenders in the event the borrower defaults on government-backed mortgages. The government agency has nothing to do with originating, processing, underwriting, and/or funding government-backed loans. Lenders need to make sure their borrowers meet all the agency mortgage guidelines of the government agency in order for the government mortgages to be covered in the event of default and/or foreclosure.
Lenders can offer either low and/or no down payment home mortgages for borrowers with less than perfect credit at low mortgage rates due to the government guarantee on government home mortgages. As long as lenders make sure they follow all the individual government agency mortgage guidelines, they can rest assured the government loans they fund will be insured by the government agency.
Government-Backed Home Mortgages Explained
There are three types of government-backed mortgages:
- FHA Loans
- VA Loans
- USDA Loans
Many believe that government mortgages are home loans originated and funded by a government agency. This is not the case. We will explain an introduction to government mortgages. Government mortgages are home loans originated and funded by banks and private mortgage companies and insured by a government agency. Lenders can offer low down payment mortgages at low-interest rates due to the government guarantee.
How this works is if a borrower defaults and forecloses on their loan, the government agency will partially guarantee the loss. Due to the guarantee, lenders have lower risks on FHA, VA, USDA Loans versus conventional mortgages. Government loans are for primary owner-occupant home mortgages only. Second-home financing and investment properties do not qualify for government-backed mortgages.
Only Fannie Mae and Freddie Mac allow for second home and investment property financing.
How Government Mortgages Work
The Reason Why Government Mortgages Was Created And Implemented:
The three federal agencies (FHA, VA, USDA) was created and implemented to promote homeownership to hard-working Americans. The purpose was to promote private lenders such as banks and mortgage bankers to offer home loans to individuals with low down payments and less than perfect credit. Due to the guarantee by the federal agencies, lenders can offer riskier loans to individuals with a low down payment at competitive mortgage rates. Homeownership by Americans promotes communities and businesses.
Government-guaranteed loans offer homebuyers opportunities to qualify for a mortgage where they would otherwise not qualify in the open market.
How Homeownership Promotes A Thriving Economy
An Introduction To Government Loans And How It Promotes The Economy And Homeownership:
- Makes homeownership possible with little to no down payment
- Improvement of the national economy and growth
- A large percentage of families could not afford a home without FHA, VA, USDA Loans
- Qualified veterans of the U.S. Armed Services are rewarded with VA Loans where no down payment is required
- Makes homebuyers with bad credit and prior bankruptcies and/or foreclosure possible to purchase a home again
- USDA Loans promotes rural area economic development
- There is no down payment required on USDA
- HUD, the parent of FHA, only requires a 3.5% down payment on a home purchase with FHA Loans
Lenders are more than eager and ready to help families qualify for FHA, VA, and USDA Loans.
Government Versus Conforming Loans
FHA, VA, USDA Loans are for owner-occupant mortgages only. You cannot finance a second home and/or investment property with these mortgages. Fannie Mae and Freddie Mac allow second home and investment property loans with conventional loans.. Interest rates on FHA, VA, USDA Loans are lower than conventional loans due to the government guarantee.
Lending guidelines are more lenient on FHA, VA, USDA Loans than they are on conventional mortgages.
Mortgage Guidelines On Government Versus Conventional Loans
A loan officer can go over the best mortgage program for you.
- There are times when you may have to opt for conventional loans if you have large outstanding student loan balances
- For example, FHA does not accept Income-Based Repayment (IBR)
- FHA requires 1.0% of the outstanding student loan balance to be used as a monthly hypothetical debt on student loans on deferment and/or if the student loan payments are not fully amortized
- VA Mortgages are for borrowers who have a valid Certificate of Eligibility (COE)
- USDA Loans require the property be located in an eligible USDA Eligible Area
Conventional Loans have a longer waiting period than government loans.
Qualifying For Conventional And Government Mortgages With A Lender With No Overlays
Gustan Cho Associates are experts in manual underwriting on FHA and VA loans. A large percentage of our borrowers are folks in an active Chapter 13 Bankruptcy repayment plan. FHA and VA loans are the only two mortgage loan programs that allow manual underwriting on home loans. Over 75% of our borrowers are folks who could not qualify at other lenders due to their lender overlays.
For more information about this article and/or other mortgage-related questions, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] The Team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays. Gustan Cho Associates Mortgage Group is a national mortgage company with no lender overlays on government and conventional loans. The Team at Gustan Cho Associates is also experts in originating Non-QM Loans. Bank Statement Mortgage, Non-QM Mortgages One Day Out Of Bankruptcy, fix and flip loans for real estate investors, asset depletion mortgages, P and L one-year self-employment stated income mortgages, and dozens of other Alternative Mortgage Loans is now offered at Gustan Cho Associates.