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 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.
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.
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.