When people think about taking out a loan, including a mortgage for a house, they usually think about speaking to a bank or credit union, sending in a loan application, and waiting to get approved. But, unfortunately, there are some situations where this pathway may not be feasible. For example, some people may not have the income stream to back up the application, and others might not have the best credit score.
Fortunately, government loans can make it easier to apply for funding for homeownership or business purposes. What are government loans, and how do they work? There are several options everyone should keep in mind.
An Overview of Government Loans
As the name suggests, government loans are loans that the federal government backs. As a result, there are plenty of options when it comes to government loans. With access to government loans, everyone can apply for funding to purchase their dream house. In addition, because the federal government backs the loans, the requirements are often easier to meet when compared to conventional loans offered by banks or credit unions.
Applying for Government Loans
The government has tried to make the process of applying for a loan as easy as possible. In some cases, people may not have to do anything except fill out an application online and submit it. For example, individuals interested in taking out a loan to go to college have to fill out the Free Application for Federal Student Aid (FAFSA) form online.
There are some situations where the government works with other approved lenders and simply insurers alone. For example, the government does not issue VA loans. Instead, the government partners with third-party lenders to put forth VA loans. Therefore, there will be a separate application process put forth by the lender.
What Are the Options for Loans from the Federal Government?
Government loans are available for just about everything. A few examples of loans that are available from the government include:
Government Loans for Housing
There are lots of options available when it comes to government loans for housing. The government partners with banks and other lenders’ services to put forth housing options so that each lender will have its application. Examples include:
- FHA loans are backed by the Federal Housing Administration and require a minimum credit score of 580 with a down payment of at least 3.5 percent
- USDA loans help people buy or build a home in a suburban or rural area and requires a minimum credit score of 640
- VA loans are backed by the Department of Veterans Affairs and requires evidence of current or prior military service (spousal relationship)
These loans might be able to help someone purchase a house.
Government Home Loans for people with poor credit
Many government home loans accept lower credit scores than conventional loans. For example, some lenders are willing to work with borrowers with credit scores as low as 580.
Does The Government Back Home Improvement Loans?
The 203K Loan is a federally-backed FHA loan that allows home buyers to purchase a home in need of repair and fund the necessary renovations in a single mortgage. A borrower can also use this loan to refinance and repair an existing home.
Government-backed loans create an opportunity for borrowers with lower credit to get the financing they need to purchase a home. In addition, the government backing of these loans allows lenders to feel confident giving these loans.
Thinking about financing a home purchase or refinance? Let’s talk