Government & Private Agencies

The US government has been interested in helping people buy homes for many decades, and it has established several organizations and many home buying programs. 

It can be confusing to hear all these acronyms (FHA, Freddie Mac, Ginnie Mae) tossed around so here’s a quick overview of the major players and how they might help you buy a home.

U.S. Department of Housing and Urban Development (HUD):

HUD’s mission is to:

  1. Increase homeownership
  2. Support community development
  3. Increase access to affordable housing.
    Local HUD offices and information about HUD programs can be found at www.hud.gov
  • State & Local Programs: HUD has numerous programs and groups, many of which are joint projects with individual states.  Please check with your local HUD office to see what is available in your area (and ask your agent whether you qualify for any community or state programs).
  • National Programs: there are several national HUD programs designed to make it easier for low and moderate-income borrowers to buy or refinance homes:
    • Federal Housing Administration (FHA)
    • HUD Homes
    • Good Neighbor Next Door Programs
    • Dollar Homes
    • Nonprofit Housing Programs
    • Ginnie Mae (Government National Mortgage Association)

Federal National Mortgage Association (Fannie Mae)

Federal Home Loan Mortgage Corporation (Freddie Mac)

Fannie Mae, Freddie Mac and Ginnie Mae were established by Congress to create the secondary market in mortgage-backed securities (MBS).  All three organizations work to increase the affordability of homeownership for low and middle-income Americans. 

The differences are that:

  • Ginnie Mae is still a part of HUD, Fannie Mae became a private company in 1968 and receives no government funding, and Freddie Mac was chartered in 1970 as a private company (which also doesn’t receive any government funding).
  • Ginnie Mae only deals with government-backed mortgages for single-family properties, Fannie Mae works with a broader range of single-family property loans and lenders, and Freddie Mac works with lenders who loan to single-family and multi-family properties. For more information about Freddie Mac: http://www.freddiemac.com/index.html

Veterans Administration Home Loan Guaranty Services:

One of the benefits of serving in the U.S. military is a VA-guaranteed home loan. For more information on VA-guaranteed loans: http://www.homeloans.va.gov/

  • How it works: Like FHA-insured loans, the loan is made by a lender, and the Veterans Administration guarantees that the loan will be repaid even if the borrower can’t make the payments
  • Advantages: These loans are a great deal for veterans:
    • A small or no down payment is required
    • They have a low debt-to-income ratio for qualifying
    • Negotiable interest rate
    • Mortgage insurance isn’t required, even with a down payment less than 20%
    • Loans are assumable
    • Loans are fixed rate loans with a choice of repayment schedules
    • Limited closing/settlement costs for the buyer
    • No prepayment penalties
    • Personal loan servicing and financial counseling if there is a possibility of foreclosure
  • Disadvantages: Using a VA-guaranteed loan to purchase a home can be more difficult than a conventional loan for a couple of reasons:
    • Time to close: it can take a lot longer to close a VA loan, which can be an issue for sellers in a hot real estate market where homes sell quickly
    • Sellers don’t favor buyers with VA loans because the seller often ends up paying more of the closing costs due to VA limits on what costs the buyer can pay
    • The VA appraisal can be quite demanding and requires that the home’s construction meet some strict standards
  • Step 1: The first step is for the buyer to qualify. The main criteria are length of service and type of discharge, or relationship to veteran:
    • Generally, the length of service requirements are:
      • At least 90 days during wartime
      • 181 days during peacetime
      • 6 years in reserves or National Guard
    • The discharge requirements are that it must not have been for dishonorable conditions
    • Widows and widowers of those killed in action and spouses of POWs and MIAs may also qualify (children of veterans are not entitled to this benefit).
  • Step 2: The next step is to file VA form 26-1880 Request of Certificate of Eligibility if discharged, and a Statement of Service signed by the appropriate officer if on active duty
  • Step 3: Then a VA appraisal estimating the value of the property must be done, and the loan amount can not exceed to amount of the appraisal
  • Loan Maximum: The loan maximum is $240,000, depending on the borrower’s income, debts, earned entitlements and the appraised value of the property.
  • Loan Limits: Loans can be for purchasing a newly built or previously owned single-family home, town home, condominium or manufactured home as a primary residence

Rural Housing Service:

The U.S. Department of Agriculture has a program to guarantee the loans of rural residents.  These loans generally have minimal closing costs and don’t require a down payment.  For more information on RHS, and a list of homes for sale go here: http://www.rurdev.usda.gov/

HUD

U.S.Department of Housing and Urban Development (HUD) Read More >>