There are several different types of mortgage loans, but mostly they fall into two larger “buckets”: loans that are federally-backed, and loans that are backed by private companies. There are some important differences between the two, so it’s good to understand some of the benefits of a federally-backed mortgage, and how to find out if yours falls into that category.
Mortgages that are backed by the federal government are funded through government-sponsored entities, or GSEs. About 50% of all mortgage loans in the U.S. are backed by a GSE, which makes them by far the most popular choice for millions of homeowners. There are five different types of federally-backed mortgages:
Where this gets a little confusing, though, is that sometimes your mortgage will be federally backed, but it is administered by one of the more traditional private lenders, such as JP Morgan Chase or Wells Fargo. That means you will see the name of the private lender on your statements, and make payments to that lender, but your loan is still backed by a GSE.
One of the biggest benefits of getting a federally-backed mortgage like an FHA or VA loan is that these loans often have different requirements for down payment and minimum credit scores. That makes them a desirable option for a first-time homebuyer without a lot of cash to make a 20% down payment, or someone who has a history of less-than-perfect credit. There are also some federally-backed mortgage loans that waive the mortgage insurance premium (MIP) even if you don’t have 20% equity in your home, which can save a lot of money on monthly payments.
However, one of the biggest drawbacks of loans through GSEs is that they do have specific requirements to qualify. That means not everyone is able to get a loan through these programs. For example, only someone who served/is actively serving in the armed forces or is the spouse of someone who served or is serving can qualify for a VA loan. Another potential drawback is that while these loans often have lower credit score requirements, they do still have minimum credit scores (usually at least 580) to get qualified.
If you want to find out whether your loan is federally back, you can use the Freddie Mac or Fannie Mae lookup tools. You can also call your loan servicer to ask (they are required by law to tell you). If you have questions about whether you can get a federally-backed loan, talk to Integrity First Lending today.