The U.S. government isn’t a mortgage lender, but it does play a role in helping more Americans become homeowners. Three government agencies back mortgages: the Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans) and the U.S. Department of Veterans Affairs (VA loans).

– FHA loans – Backed by the FHA, these types of home loans help make homeownership possible for borrowers who don’t have a large down payment saved up or don’t have pristine credit. Borrowers need a minimum FICO score of 580 to get the FHA maximum of 96.5 percent financing with a 3.5 percent down payment; however, a score of 500 is accepted if you put at least 10 percent down. FHA loans require two mortgage insurance premiums: one is paid upfront, and the other is paid annually for the life of the loan if you put less than 10 percent down, which can increase the overall cost of your mortgage. Lastly, with an FHA loan, the home seller is allowed to contribute to closing costs.

– USDA loans – USDA loans help moderate- to low-income borrowers buy homes in rural areas. You must purchase a home in a USDA-eligible area and meet certain income limits to qualify. Some USDA loans do not require a down payment for eligible borrowers with low incomes. There are extra fees, though, including an upfront fee of 1 percent of the loan amount (which can typically be financed with the loan) and an annual fee.

– VA loans – VA loans provide flexible, low-interest mortgages for members of the U.S. military (active duty and veterans) and their families. VA loans do not require a down payment or mortgage insurance, and closing costs are generally capped and may be paid by the seller. A funding fee is charged on VA loans as a percentage of the loan amount to help offset the program’s cost to taxpayers. This fee, as well as other closing costs, can be rolled into most VA loans or paid upfront at closing. Many lenders offer the lowest rates possible on VA loans, and some are willing to accept lower credit scores.

Pros of government-insured loans

– Help you finance a home when you don’t qualify for a conventional loan

– Credit requirements more relaxed

– Don’t need a large down payment

– Available to repeat and first-time buyers

– No mortgage insurance and no down payment required for VA loans

Cons of government-insured loans

– Mandatory mortgage insurance premiums on FHA loans that cannot be canceled unless refinancing into a conventional mortgage

– Loan limits on FHA loans are lower than conventional mortgages in most areas, limiting potential inventory to choose from

– Borrower must live in the property (although you may be able to finance a multi-unit building and rent out other units)

– Could have higher overall borrowing costs

– Expect to provide more documentation, depending on the loan type, to prove eligibility

Who should get a government-insured loan?

If you cannot qualify for a conventional loan due to a lower credit score or limited savings for a down payment, FHA-backed and USDA-backed loans are a great option. For military service members, veterans and eligible spouses, VA-backed loans can be a good option — often better than a conventional loan.

Fixed-rate mortgages maintain the same interest rate over the life of your loan, which means your monthly mortgage payment always stays the same. Fixed loans typically come in terms of 15 years or 30 years, although some lenders allow borrowers to pick any term between eight and 30 years.

Pros of fixed-rate mortgages

– Monthly principal and interest payments stay the same throughout the life of the loan

– Can more precisely budget other expenses month to month

Cons of fixed-rate mortgages

– Generally need to pay more interest with a longer-term loan

– Interest rates typically higher than rates on adjustable-rate mortgages (ARMs)

Who should get a fixed-rate mortgage?

If you are planning to stay in your home for at least five to seven years, and want to avoid the potential for changes to your monthly payments, a fixed-rate mortgage is right for you.

Unlike the stability of fixed-rate loans, adjustable-rate mortgages (ARMs) have fluctuating interest rates that can go up or down with market conditions. Many ARM products have a fixed interest rate for a few years before the loan changes to a variable interest rate for the remainder of the term. For example, you might see a 7-year/6-month ARM, which means that your rate will remain the same for the first seven years and will adjust every six months after that initial period. If you consider an ARM, it’s essential to read the fine print to know how much your rate can increase and how much you could wind up paying after the introductory period expires.

Pros of ARMs

– Lower fixed rate in the first few years of homeownership (although this isn’t a guarantee; as of late, 30-year fixed rates have actually been keeping pace with 5/1 ARMs)

– Can save a substantial amount of money on interest payments

Cons of ARMs

– Monthly mortgage payments could become unaffordable, resulting in a loan default

– Home values may fall in a few years, making it harder to refinance or sell before the loan resets

Who should get an ARM?

If you don’t plan to stay in your home beyond a few years, an ARM could help you save on interest payments. However, it’s important to be comfortable with a certain level of risk that your payments might increase if you’re still in the home.

In addition to these common kinds of mortgages, there are other types you may find when shopping around for a loan:

– Construction loans – If you want to build a home, a construction loan can be a good choice. You can decide whether to get a separate construction loan for the project and then a separate mortgage to pay it off, or wrap the two together (known as a construction-to-permanent loan). You typically need a higher down payment for a construction loan and proof that you can afford it.

– Interest-only mortgages – With an interest-only mortgage, the borrower pays only the interest on the loan for a set period of time. After that time is over, usually between five and seven years, your monthly payment increases as you begin paying your principal. With this type of loan, you won’t build equity as quickly, since you’re initially only paying interest. These loans are best for those who know they can sell or refinance, or for those who can reasonably expect to afford the higher monthly payment later.

– Piggyback loans – A piggyback loan, also referred to as an 80/10/10 loan, actually involves two loans: one for 80 percent of the home price and another for 10 percent. Then, you make a down payment of 10 percent. These are designed to help the borrower avoid paying for mortgage insurance. While eliminating those PMI payments might sound appealing, keep in mind that piggyback loans require two sets of closing costs and two loans accruing interest. You’ll need to crunch the numbers to find out if you’re really saving enough money to justify this unconventional arrangement.

– Balloon mortgages – Another type of home loan you might come across is a balloon mortgage, which requires a large payment at the end of the loan term. Generally, you’ll make payments based on a 30-year term, but only for a short time, such as seven years. At the end of that time, you’ll make a large payment on the outstanding balance, which can be unmanageable if you’re not prepared. You can use Bankrate’s balloon mortgage calculator to see if this kind of loan makes sense for you.

So where to get started?

First you need to decided if there is a specific bank or institution you would like to get your loan from. From there you can decide if you want a loan officr or mortgage broker.

Loan Officer vs. Mortgage Broker

A loan officer works for a bank, credit union, or another mortgage lender, and offers programs and mortgage rates from just this institution. A mortgage broker, in contrast, works on a borrower’s behalf to find the lowest available mortgage rates and the best loan programs available through multiple lenders.

We have many contacts in this industry to connect you with the right person. Give us a call and we can give you some options to a professional that specializes to meet your homeownership goals..