Government Loans

Government Loans

Government loans are loans that the Federal Government insures and are issued by lenders like Mortgage Equity Partners. Since the government insures them, they are considered less risky to lenders and have less strict requirements for qualifying than a conventional mortgage.

Often, government loans require lower down payments, sometimes as low as zero down or 10% of the property’s sales price. They also allow for lower credit scores. Typically, a borrower requires a credit score no lower than 620, but the credit score can be much lower with some government loans. Your Debt-to-Income ratio (DTI)  is the amount you owe in monthly debt compared with your income. Government loans allow for higher DTIs.

Government Loan Types

FHA loans

FHA loans are designed to help low to moderate-income borrowers qualify for home financing. They are popular because they allow lower credit scores and smaller down payments. The minimum down payment for an FHA loan is 3.5% of the property’s sales price if you have a credit score above 580. You may need to make a bigger down payment if your score is lower. FHA loans do require borrowers to pay a Mortgage Insurance Premium.

VA loans

VA loans are for military members, veterans, and their surviving spouses. VA loans do not require a down payment and don’t specifically require a minimum credit score, but at MEP, we require a credit score of at least 580. In addition, VA loans don’t have a mortgage insurance premium requirement. VA borrowers need a Certificate of Eligibility to participate in this loan program from the Veterans Administration.

USDA loans

USDA loans are available for low to moderate-income borrowers living in rural and some suburban areas. USDA loans have income restrictions tied to the area’s median household income limit. The USDA does not set a minimum credit score, but at MEP, you need at least 640 to qualify. These loans also don’t require a down payment. USDA loans require mortgage insurance.