Two government agencies, the Federal Housing Administration and the Veterans Administration, sponsor mortgage programs which help home buyers who may not be able to qualify for a loan under conventional guidelines. The agencies do not make loans directly, but insure or guarantee the mortgage lender against loss if the borrower defaults on the payments.

Because the government agency assumes much of the risk, the mortgage lender can use more lenient qualifying guidelines with regard to income, down payment requirements and debt ratios. Both fixed and adjustable interest rate mortgages are available.

FHA 203B

This is the standard FHA loan. The loan does require mortgage insurance. There are no income limits for FHA loans.

DOWN PAYMENT: The down payment may be as little as 3% and may include a gift of funds.

CLOSING COSTS: Closing costs may be paid by the seller or may be financed as part of the loan.

DEBT-TO-INCOME RATIOS: Monthly mortgage payment may not exceed 29% of gross monthly income; total monthly payments on long-term debt may not exceed 41%.

FHA Streamline Checklist (pdf format):
With appraisal
Without Appraisal

FHA 203K

This loan is for the purchase and rehab of a property. The loan for the FHA-required repairs, as well as cosmetic repairs requested by the borrower, is made at the same interest rate as the mortgage loan. The borrower repays both loans with one monthly payment.

The basic requirements are the same as those of the FHA 203 B program. Added inspections and appraisals may result in higher closing costs, however.

VA LOANS

VA loans are available to veterans and reservists with 90 days wartime or 180 days peacetime service and no dishonorable discharge, or the unmarried, surviving spouses of veterans who died due to service-related illness or injury. There are no income limits and no mortgage insurance is required. A certificate of eligibility from the VA is necessary.

DOWN PAYMENT: None required

VA Streamline Checklist

CLOSING COSTS: Controlled by the VA. VA does charge a funding fee.