Government-backed loans
A government-backed loan is a loan insured by specific government agencies that protect lenders if a borrower cannot make their loan payments. The purpose of government-backed loans is to make homeownership affordable to lower-income households, credit-challenged borrowers, and first-time homebuyers. Government-backed loans tend to have more lenient qualifying guidelines.
FHA, VA, and USDA are the most popular government loans.
FHA loans
FHA loans allow you to get into a home with a lower credit score, provided you purchase private mortgage insurance. Down payment requirements can be as low as 3.5% of the sale price of a home. FHA loans are a good option if your credit score isn’t high enough to qualify for a conventional loan.
VA loans
The U.S. Department of Veterans Affairs backs VA loans. VA loans are designed for select military community members, their spouses, and other beneficiaries. They do not require a down payment and don’t charge private mortgage insurance.
USDA loans
The U.S. Department of Agriculture insures USDA loans. They can help low-to-moderate-income homebuyers who want to purchase a home in an eligible rural area and some suburban areas. USDA loans do not require a down payment and provide a little more flexibility with credit score requirements.
While various government agencies insure these loans, private lenders like Mortgage Equity Partners provide them to borrowers.