3 Things You Probably Didn’t Know About Government Backed Home Loans
So here’s a question: how much do you really know about government home loans? There are plenty of us that prefer to steer clear of anything associated with the government, but before you cut and run let’s take a look at some of the facts.
Since the recession, buying homes has become a bit trickier for first-time home buyers. Why? Because lenders don’t want to offer loans to people who won’t pay them back. If a borrower defaults on their loan, lenders are in danger of losing a lot of money, so it makes sense that they’d take steps to only offer loans to people with good track records. That means that you need a higher credit score and a higher down payment to buy a home these days.
But not everyone needs a huge chunk of change to become a homeowner. Enter government-back loans. The idea behind these loans is that Uncle Sam guarantees your loan. As long as the government is willing to pay for defaulted loans, the lender handling your loan will be much more willing to fund you without making you jump through flaming hoops.
There are three main types of government-funded loans out there:
1. FHA Loans—These are popular for first-time home buyers, but anyone who qualifies can get lower credit requirements, low down payments, and great rates.
2. VA Loans—These loans are specifically for eligible veterans and their spouses and offer extremely low rates and in many cases no down payment at all.
3. USDA Rural Development—Once intended just for farmers, the U.S. Department of Agriculture’s Rural Development housing program now serves rural communities as a whole and guarantees as much as 90 percent on qualified mortgages.
Like anything, each type of government-backed loan has its drawbacks. But they also have some compelling benefits that can’t be denied. Here are three of the biggest ones:
Benefit #1—These loans are more likely to close
It’s true that only a small percentage of the population is eligible for government-backed loans. But interestingly enough, government-backed loans and VA loans in particular have a much higher close rate than conventional loans. So if you do qualify for a special loan and decide to go this route, chances are you’ll close without a hitch.
Benefit #2—They can give you very low interest rates
While it’s true that some government-backed loans come with steep interest rates, others have even better rates than conventional loans. The rate you get will depend on many factors, including your credit score and the lender you choose, but government loans are known for having lower average interest rates than conventional loans across the board.
Benefit #3—They don’t take forever to close
There’s a popular misconception running around that government-backed loans take forever and a day to close. But the numbers tell us this isn’t true at all. The average conventional loan takes 49 days to close, and according to Ellie Mae, VA loans take 50 days on average.
To find out more about government-backed loans and if one of them might be right for you, talk to your lender and be sure to explore all your financing options. Good luck!