Government home loans: Everything you need to know

An FHA loan is a mortgage loan insured by the Federal Housing Administration. Private lenders make the loans, which are guaranteed and regulated by the government. The FHA has backed more than 46 million mortgages since 1934.

FHA loans can be great for first-time homebuyers who have less saved for a down payment or have a lower credit score. The FHA requires as little as 3.5% down if your credit score is above 580. If you have a credit score between 500 and 579, the down payment requirement increases to 10%.

FHA loans require mortgage insurance, which protects the lender if you stop paying the loan, and a debt-to-income ratio of 57% or less.

The FHA also has these special types of loan programs:

• The FHA 203(k) program is for borrowers buying a home that needs repairs. This program lets buyers bundle the purchase price and eligible repair costs (as long as they’re at least $5,000) into one loan.
• The Energy Efficient Mortgage program provides energy-efficient loans for qualifying green properties. Many states offer their own programs as well.
• The Section 184 Indian Home Loan Guarantee Program provides mortgages for American Indian and Alaska Native families who want to buy or build a home on federally recognized trust land.

» COMPARE: Best FHA loan lenders

The Department of Veterans Affairs offers qualifying service members, veterans and their spouses VA loans that have several benefits.

VA loans require no down payment if the sale price is less than or equal to the appraised value, and there is no mortgage insurance requirement. To qualify for a VA loan, you must obtain a VA Certificate of Eligibility .

Once you do, you can borrow up to the Fannie Mae and Freddie Mac conforming loan limits (plus more if you have a down payment). There are also fewer closing costs and no prepayment penalties associated with VA loans.

“Most people are skeptical of the credit standards and ask what's the catch, and I can answer honestly, there isn't one,” said Ronne.

The VA also offers Native American Direct Loans (NADLs) for Native veterans and their spouses. Many of the requirements and much of the process for getting NADLs are the same as with standard VA loans. However, your tribal government must have an agreement or a Memorandum of Understanding with the VA explaining how the program will work on the tribal government’s lands.

» COMPARE: Best VA loan lenders

The U.S. Department of Agriculture offers no-down-payment mortgage loans that help buyers with low to moderate incomes afford safe, sanitary homes in qualified rural areas.

“Last month I closed out a purchase loan that allowed a first-time homebuyer to borrow 100% of the purchase price and get seller concessions to cover all his closing costs and prepays,” Ronne explained. “This individual bought a house on the USDA/RHS platform and only spent $675 out of pocket for an appraisal.”

There are several types of USDA loans , but they all tend to come with the same requirements:

• Steady income and employment
• Debt-to-income ratio of 41% or less
• Home is located near a qualified rural area

There are no set credit requirements for USDA loans (requirements will vary depending on the lender), as well as no maximum purchase and no maximum acreage limit on the property.

» COMPARE: Best USDA lenders

Mortgage assistance programs can lessen the burden of taking on a mortgage. A few of the most popular programs include:

• Homeowners Assistance Fund (HAF): These state-run programs assist homeowners who were financially impacted by COVID-19. Depending on the program, you can get help covering the cost of mortgage payments, property taxes, homeowners insurance, utilities and more.
• Refinancing: Mortgage refinancing helps lower your monthly mortgage payments. You may be able to qualify for a lower interest rate or a longer loan term, which can help make your payments more affordable. Just know that you’ll pay more in the long run if you extend the life of your loan.
• Loan modification: A loan modification is similar to refinancing, but rather than taking out a brand new mortgage, you make changes to your current one. This may involve lowering your interest rate, extending your loan term or even reducing your principal balance.
• Forbearance: Forbearance is a temporary pause on your mortgage payments. If you're experiencing financial hardship, you may be able to qualify for forbearance. During this time, you won't have to make your mortgage payments, but interest will continue to accrue.

If you are struggling to save for a down payment for your home, you may be eligible for a down payment assistance program , such as:

• State Housing Finance Agencies (HFAs): These agencies offer a variety of programs to help homebuyers with down payment and closing costs. Each state has its own programs and eligibility requirements, so it's important to check with your state's HFA .
• Community Development Block Grants (CDBG): These annual grants are provided on a formula basis by the U.S. Department of Housing and Urban Development (HUD) to states, cities and counties. The goal is to help improve neighborhoods by building homes and creating jobs for people with lower incomes. Check with your local government to see if there are CDBG programs available in your area.

Programs like Making Home Affordable (MHA) and Home Affordable Foreclosure Alternatives (HAFA) have expired. But homeowners can still receive foreclosure prevention assistance through programs like the Homeowners Assistance Fund (HAF), which was recently established as part of the American Rescue Plan Act of 2021.

The HAF program provides financial assistance to eligible homeowners who are struggling to make their mortgage payments due to the COVID-19 pandemic. It is administered by state housing finance agencies, and you can apply for assistance through your state agency.

You can also speak with a local HUD-approved housing counseling agency to get free help with foreclosure prevention. If you have an FHA loan, call the FHA National Servicing Center for help.