What are government insured home loans?
Basically they are loans where the bank will have to insure the loan against losses that the borrowers may encounter. The only way a bank can insure this type of loan is by the government. Since the government will be guaranteeing the loan, the bank will not lose out on any money when the borrower defaults.
The first loans that were funded through guaranteed or insured loans were provided to the citizens of the United States. It was the U.S. government that provided this funding to American citizens to assist them in buying homes for the first time. Banks began backing many loans that they would give out to people in the neighborhoods.
When you consider what the government has done, it is very interesting to note that their policies and their plans are completely different from banks. Banks do not want to take risk on the people that they give out loans to. They want the loans to be paid back in full each month. In the case of a house, that may be the case if the borrower only misses a couple of payments.
Three most popular government funded programs are as under:
- VA Home Loans – VA loans are issued by private lenders, such as a mortgage company or bank, and guaranteed by the U.S. Department of Veterans Affairs (VA).
- FHA Home Loans – An FHA loan is a mortgage issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). This program is designed for low-to-moderate-income borrowers.
- USDA Home Loans – USDA loans are guaranteed by the US Department of Agriculture. These loans are special mortgages meant for low-to-moderate-income home buyers.
Banks often have to bear the losses, since the borrowers do not put a lien on the property. However, government backed loans will take that risk away from the bank. If the house is damaged during a fire or any other type of event, the bank does not have to hold a lien on the house. The government will be taking care of that for them.
When banks begin to back a loan, they begin to do business on the market. By giving out loans to people that cannot qualify for traditional loans, it forces other banks to raise their standards. In addition, they will be giving out loans at a lower interest rate than normal. This is because the borrowers will be getting a higher amount of money, but it will be at a lower interest rate.
People who qualify for these government backed loans are those who need cash to purchase a house and have bad credit. They must also meet certain requirements to get the loan. These people have been approved for a certain amount of funding.
To learn more about government insured home loans, you may want to check out one of our loan officers you can explain any doubts that you may have to further get some information on how to finance your home.