Government-Insured Mortgage (GIM) is a great alternative for homebuyers who have a low down payment or would like to save on closing costs.
What Is a Government-Insured Mortgage?
A government-insured mortgage is a mortgage that is insured by the Federal Housing Administration (FHA) or Veterans Administration (VA). Both agencies offer insurance on mortgages in addition to the standard FHA and VA programs, which offer insurance on loans with down payments of less than 20% of the purchase price.
HUD-insured mortgages are insured by the Department of Housing and Urban Development (HUD), not FHA or VA. They are usually less expensive than FHA or VA loans, but also have fewer benefits than conventional FHA and VA loans.
If you have a low credit score of 580 or lower, you may be eligible for HUD-insured financing.
The minimum credit score for a first-time homebuyer is 620.
A government-insured mortgage is not the same thing as a Federal Housing Administration (FHA) loan. An FHA loan must be guaranteed by the federal government, while a HUD-insured mortgage does not need to be guaranteed by the federal government.
The Federal Housing Administration (FHA)
The Federal Housing Administration (FHA) is an agency within the United States Department of Housing and Urban Development (HUD). It is the largest single source of mortgage funding for the U.S. housing market, insuring about 30 percent of all mortgages issued in the country.
The FHA was created to stabilize the housing market after the Great Depression, by providing insurance for lenders against default by borrowers and requiring them to maintain reserves equal to 20 percent of their outstanding loans.
The FHA also offered a variety of other programs, including down payment assistance, affordable homebuyer counseling, and loan modification assistance.
Today, it provides insurance against default by borrowers through its Mutual Mortgage Insurance Fund (MMI), which pays claims when a borrower defaults on a mortgage insured by FHA. It also provides down payment assistance programs through several agencies such as NeighborWorks America, Home Advantage, and First Home Mortgage Loan Program.
The FHA’s Home Ownership and Equity Protection Act of 1994 (HOEPA) requires lenders to assess borrowers’ ability to make payments on time, even if they have imperfect credit histories. Borrowers who pass this test do not have to pay any mortgage insurance premiums.
The U.S. Department of Veterans Affairs (VA)
The U.S. Department of Veterans Affairs (VA) provides a mortgage loan benefit to eligible military veterans and their spouses, surviving spouses, and children. This benefit is also known as a VA home loan benefit or a VA mortgage loan benefit or as an FHA loan benefit.
The VA mortgage loan benefit is available through the United States Department of Veterans Affairs (VA). The VA offers two types of mortgages:
Government-insured mortgages that are backed by the United States government and guaranteed by the Federal Housing Administration (FHA)
The U.S. Department of Veterans Affairs (VA) also offers a mortgage insurance option called “VA MMI” which is similar to traditional VA-guaranteed mortgages. You may be eligible for this option if you are a veteran, or have a service-connected disability that makes it difficult for you to qualify for a conventional mortgage loan.
The VA offers two different types of VA-guaranteed mortgage loans:
- VA Home Loan Guarantee (VHLG)
A VHLG is an option that allows you to purchase a home with very low down payments, so long as you meet certain income requirements and credit requirements.
- VA Mortgage Insurance (VMI)
VMI is an optional program that helps cover the difference between what you owe on your mortgage and how much it costs for the government to insure the loan. If you choose not to take out VMI coverage, then your lender will pay upfront for this insurance policy and then deduct the cost from your monthly payment amount once you’ve closed on your home loan.
The U.S. Department of Agriculture (USDA)
The USDA’s Rural Housing Service (RHS) is the largest single source of funds to help rural areas build and repair homes and to provide rental assistance. The RHS is also responsible for administering the Making Homes Affordable program that helps low-income families move into safer, more sanitary housing conditions.
The department offers several different loan programs to help you finance your home purchase, including:
- Government-insured mortgages are backed by the National Housing Agency, which is guaranteed by the U.S. Department of Agriculture (USDA). The maximum loan amount for this program is $135,000 with a 3% down payment and no private mortgage insurance (PMI) required on the first mortgage. This program does not require any down payment or PMI for second or subsequent mortgages on the same property.
- Non-government-insured mortgages are backed by the National Mortgage Association (NMA) or the Government National Mortgage Association (GNMA). These loans have no government guarantee but they can be used in conjunction with USDA loans.
- The USDA Home Equity Loan Program provides down payment assistance and interest-free first mortgages for eligible home buyers who want to buy a house but don’t have enough money saved up for a down payment or closing costs. The program also offers zero closing costs, which means no fees are charged when you close on your new house and move in.