Government Loans

• FHA Loans:
  
  The Federal Housing Administration (FHA), which is part of the U.S. Dept. of Housing and Urban Development (HUD), offers various mortgage loan programs. FHA loans have lower down payment requirements and are easier to qualify for than conventional loans.
  
  FHA loans are not score driven. Instead, they are written in a way that provides the borrower the benefit of the doubt that there had been, at some point in their past, circumstances beyond their control, and as long as the borrower has recovered from those circumstances in a reasonable manner, they're generally going to be credit-eligible for an FHA loan.
  
  The FHA guidelines are forgiving about circumstances that many other lending programs, including conventional, are not favorable towards. The FHA states that a borrower, recovering from a Chapter 7 Bankruptcy, can be eligible for an FHA loan two years after being discharged. To be eligible for an FHA loan after a foreclosure, a three-year wait time is required after being discharged. If the borrower has filed for a Chapter 13 Bankruptcy or is in a consumer credit counseling program (where the borrower has re-established a negotiated repayment term based on their credit items), and has been on the plan for 12 months making consistent payments on time, the borrower will be eligible for an FHA loan.
  
  Source of Down Payment Flexibility
  
  An FHA-insured loan allows a wide variety of assets to be used to cover the buyer's down payment and closing costs. FHA guidelines require a 3% minimum investment from the borrower; however, those funds can be from a gift or from a variety of other sources. The FHA considers gift funds to be the same as if they were the borrower's own funds truly seasoned for sixty days in the borrower's account, or proven to be from other eligible sources. You also have the option of using down-payment assistance charity programs like The Nehemiah® or AmeriDream® down payment assistance programs. Use of charity fund programs allow the buyer to receive a gift for the down-payment immediately prior to closing, and then the amount of the gift plus a small service fee is collected from the seller immediately after closing. This is a legal way of funneling money from the seller to the buyer that is acceptable to HUD.
  
  FHA guidelines also allow fund sources such as mattress money, or lease option credits used, as they are lenient about how the borrowers can procure the down payment money. As an added bonus, the FHA is very liberal about what they will let the seller pay in the way of the buyer's closing costs and pre-paid items. The seller can pay up to 6% in concessions towards the buyer's closing costs, pre-paids and discount points.

• VA Loans:
  
  VA loans are guaranteed by the U.S. Dept. of Veterans Affairs. The guaranty allows veterans and service persons to obtain home loans with favorable loan terms, usually without a down payment. In addition, it is easier to qualify for a VA loan than a conventional loan. Lenders generally limit the loan amount for VA loans. The U.S. Department of Veterans Affairs does not make loans, it guarantees loans made by lenders. VA determines your eligibility and, if you are qualified, VA will issue you a certificate of eligibility to be used in applying for a VA loan. VA-guaranteed loans are obtained by making application to private lending institutions.
  
  Another loan option for veterans is the FHA veterans loan programs, recently addressed in a mortgagee letter, numbered 04-24, which waives the 3% minimum investment requirement for eligible veterans. To qualify, a certificate must be submitted to the Department of Veterans Affairs (http://www.va.gov) to determine whether or not the veteran is eligible for the program. This loan option reduces the closing costs and down payment to the veteran. The benefit is that an eligible veteran who already has their full VA loan guaranty eligibility in use could utilize this option in the event of a move or relocation, to purchase another primary residence.

• RHS Loan Programs:
  
  The Rural Housing Service (RHS) of the U.S. Dept. of Agriculture guarantees loans for rural residents with minimal closing costs and no down payment.

• State and Local Housing Programs:
  
  Many states, counties and cities provide low to moderate housing finance programs, down payment assistance programs, or programs tailored specifically for a first time buyer. These programs typically have easier qualification guidelines and are often designed with lower upfront fees. Also, there are often NH loan assistance programs offered at the local or state level such as MCC (Mortgage Credit Certificate), which allows you a tax credit for part of your interest payment. Most of these programs are fixed rate mortgages and have interest rates lower than the current market.