Government-Backed Loans For First-Time Homebuyers
This Article Is About Government-Backed Loans for first-time homebuyers. Most people do not want too much government. However, when it comes to government-backed loans, everyone is all for it. Government-backed loans are ideal for first-time homebuyers because it requires little to no down payment plus has lenient mortgage guidelines. In the following paragraphs, we will cover what are government-backed loans and why they are the mortgage loan of choice for first-time homebuyers.
What Loans Are Government-Backed Loans?
Government-Backed Loans are FHA, VA, and USDA Loans. Government agencies do not lend on government-backed loans. Government-backed loans are originated, underwritten, funded, and serviced by private lenders. The role of FHA, VA, and USDA is to insure and partially guarantee lenders in the event borrowers default on their government-backed loans.
Due to this government guarantee, lenders can offer little to no down payment mortgages to home buyers at very low-interest rates. As long as lenders follow government agency mortgage guidelines on the particular loan program, they are partially insured against the loss in the event borrowers default on their loans. In this article, we will discuss and cover Government-Backed Loans Versus Conventional Mortgages.
Types of Financing For Home Buyers and Homeowners
There are two types of traditional residential financing. Government-backed and conventional loans are the two most common mortgage loans. There are three types of government-backed loans: FHA, USDA, and VA. Government-backed loans are originated and funded by private mortgage lenders. The three government agencies insure government-backed loans to private lenders in the event borrowers default and foreclose on their home loans.
Due to the government guarantee, lenders can offer government loans with low to no down payment at competitive rates. Government agencies act like mortgage insurance to private lenders. The third type of mortgage loan is non-QM and portfolio loans. Portfolio lenders use their own money to fund portfolio loans and keep them in-house. Portfolio lenders do not sell portfolio loans to Fannie Mae or Freddie Mac.
What Are Portfolio Loans?
Fannie/Freddie will not purchase it on the secondary market. It then becomes a portfolio loan where the lender needs to hold it in-house. Or lenders can sell it as a scratch-and-dent loan on the secondary market.
What Are Conventional Loans?
Conventional loans are often referred to as conforming loans. This is because they need to conform to Fannie Mae and/or Freddie Mac Guidelines. Lenders need to conform to Fannie Mae and/or Freddie Mac underwriting standards in order for them to resell the loan on the secondary market after it funds to Fannie/Freddie. If it does not conform to Fannie/Freddie standards, it is called a non-conforming loan.
There is no government guarantee on conventional loans. The lender takes the risk if the borrower defaults. That is why conventional loans have tougher mortgage guidelines than government-backed loans. For government-backed loans, FHA, VA, and USDA guarantee and partially insure the loss lenders take if their borrowers default. In order for FHA, VA, and USDA to guarantee government-backed loans, lenders need to strictly abide by and follow their agency guidelines.
What Are VA Home Loans?
VA loans are government-backed loans only available to either active and/or retired members of the United States Armed Services. The Department of Veterans Affairs is in charge of VA home loans.
The United States Congress passed the GI Bill in 1944 and created and implemented VA loans as a benefit for our veterans returning from World War II. Veterans returning from deployment did not have the best credit or savings. VA made guidelines easy and lax.
VA Loan Requirements
There are no down payment requirements on VA Loans. There are no maximum debt-to-income ratio caps. VA offers 100% financing. It also offers sellers to contribute up to 4% in seller concessions so buyers do not have to come up with any closing costs.
Mortgage rates on VA loans are lower than conventional loans. There is no maximum loan limit. If borrowers are short with closing costs from the seller’s concessions, lenders can offer lender credit to offset the shortage or cover the whole closing costs.
Qualifying For VA Loans
VA is the best loan program in the United States. However, you need to be an active and/or retired member of the U.S. Armed Services with a valid Certificate of Eligibility to qualify. It offers lower rates than conventional loans. Offers 100% financing with no down payment requirements. VA does not have a minimum credit score requirement or maximum debt-to-income ratio cap. Non-QM Mortgage Brokers has no overlays on VA loans.
VA Loan Eligibility Guidelines For First-Time Homebuyers
Eligible active-duty and retired veterans buying their first home with VA loans should expect a very simple streamlined process of getting qualified and approved for a VA loan. Below is a circular from the Veterans Administration about the VA loan eligibility guidelines for homebuyers:
FHA Government-Backed Loans
FHA loans are the most popular government-backed loan program in the U.S. HUD, the parent of FHA created very lenient credit and DTI guidelines on FHA loans. The positives with FHA loans are only a 3.5% down payment is needed for borrowers with 580 credit scores. Homebuyers can qualify for FHA loans under 580 credit scores down to 500 FICO with a 10% down payment.
Negatives include a one-time upfront MIP of 1.75% and a lifetime 0.85% annual FHA MIP on all 30-year fixed-rate FHA loans. It is much easier to get an approve/eligible per automated underwriting system with FHA loans than any other loan program. FHA is much more lenient when it comes to getting automated approval via AUS with outstanding collections and charged-off accounts than other government-backed loans and conventional loans.
USDA Government-Backed Loans
USDA is the third government-backed loan. USDA has a location and maximum income guidelines. Only properties in certain rural areas designated by USDA qualify. This loan program also has a maximum household income cap. Maximum allowable income from borrowers is capped at 115% of the median household income for the particular area.
The great benefit of USDA Mortgages is it offers 100% financing. Now down payment is required. Sellers can offer up to 6% sellers concessions to home buyers so no closing costs are required. Lenders can also offer lender credit to borrowers for closing costs in lieu of slightly higher rates.
Qualifying For Government-Backed Loans With No Lender Overlays
Non-QM Mortgage Brokers is a mortgage company licensed in multiple states with no lender overlays on government and conventional loans. We are also experts in alternative financing programs like NON-QM and Bank Statement Loans for self-employed borrowers.
If you need to qualify with a mortgage company licensed in multiple states with no lender overlays, please contact us at Non-QM Mortgage Brokers at 800-900-8569 or text us for a faster response. Borrowers can email us at gcho@gustancho.com. The team at Non-QM Mortgage Brokers is available 7 days a week, evenings, weekends, and holidays.
