Government Home Loans: What Options Are Available?

Written by Elijah BishopReviewed by Nathan Brown, CFP®Updated: 29th Apr 2022
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With the average home price in the U.S hovering around $287,148, buying a home can be pretty expensive.

This is one of the many reasons why most homebuyers take out mortgages to purchase their dream home.

And if you’re like millions of potential home buyers planning to take out a mortgage to finance the purchase of your next home, you’ll have to decide between two major types of mortgages: Conventional loans and Government home loans.

We’ve created a short guide to everything you need to know about government home loans.

So, let’s get started!

What Are Government Home Loans?

Government loans, like the name implies, are loans that the federal government backs. The U.S. government offers several loan programs through different departments to support the needs of qualified individuals, businesses, and communities.

In terms of housing loans, several government-backed loans are created to help home buyers purchase their dream loans.

Unlike loans from private lenders or conventional loans, government loans are often available with low down payment and credit score requirements.

How Do Government Home Loans Work?

Taking out a government home loan can be as simple as filling out a loan application form on the government agency website or mobile apps. In other cases, it may involve working with a government-approved lender to get one.

When the federal government lends money to individuals, it usually does not issue the loans directly. Instead, it only insures the loan issued by private lenders and banks.

That is, if a borrower defaults on the payment of the loan, the federal government has to repay the lender. Government loans like FHA and VA loans are good examples of government-secured loans.

However, in some cases, a government loan may be issued directly by Uncle Sam. A good example is the U.S. Department of Agriculture (USDA) that issues USDA loans directly to qualified beneficiaries.

Types of Government Home Loans

When it comes to housing loans, the federal government only secures them, but government-approved lenders issue them.

So, to get a government home loan, you may need to work with a private lender or lending company.

Below are some of the significant types of government-backed home loans.

FHA Loan

Insured by the Federal Housing Administration, FHA loans offer a much lower down payment and credit score requirement than conventional loans.

Depending on your location, it is possible to get an FHA loan of up to $822,375 with as little as a 3.5% down payment.

You’ll need the following to get an FHA loan:

  • Down payment: 3.5%
  • Credit Score: 580, but it is possible to get an FHA loan with a FICO score between 500 to 579. However, you will need to put down at least 10% of the home price.
  • DTI: 43%

VA Loan

Insured by the Department of Veteran Affairs, VA Loans are designed to provide affordable home loans for members of the U.S. armed force, veterans, and spouses of members who have died in military service. VA loans usually charge a lower interest rate and require zero down payment.

Here are the requirements to get a VA loan:

  • Down payment: Zero
  • Credit Score: Each VA-approved lender sets its lending standards but generally expects a credit score requirement of 620.
  • DTI: 41%

>> More: Best VA Mortgage Lenders


Backed by the U.S. Department of Agriculture, USDA loans are tailored toward individuals looking to buy a house in a sufficiently rural area.

Like VA Loans, USDA loans charge a significantly lower interest rate compared to conventional loans.

To qualify for a USDA loan, you’ll need the following:

  • Down payment: Zero
  • Credit score: 640
  • DTI: 41%

Native American Direct Loan (NADL)

NADL is an unpopular home loan option targeted at Native American Veterans who would love to buy, build, or improve a home on Federal Trust land.

Just as with a VA loan, you’ll need to present a certificate of eligibility (COE) with your tribal organization and credit report.

Interest Rate Reduction Refinance Loan (IRRRL)

If you already have a VA loan and would love to reduce your monthly mortgage payments, an IRRRL or VA Loans streamline refinance can help you refinance with a lower interest rate.

Depending on your lender and loan terms, an IRRRL can give you some of the lowest interest rates available in the market.

Can You Refinance a Government Backed Mortgage?

Yes, it is possible to refinance a government-backed mortgage. Homeowners with federally insured mortgages like FHA, VA, and USDA have more access to various streamlined refinance programs than conventional loans.

Homeowners with FHA loans can qualify for FHA Streamline if they have made on-time payments on their existing FHA loan in the last six months.

Homeowners may also need to pass a benefits test related to their refinance goal. One of the upsides to FHA streamline refinance is that it requires no appraisal or complete credit history checks, which means a limited underwriting process.

Military members or veterans with an existing VA loan can quickly refinance if they qualify for an interest rate reduction refinance loan (IRRRL).

IRRRLs do not require a home appraisal or credit checks and can be done with no out-of-pocket costs to the borrower.

One of the requirements to qualify for a VA Loans refinance is to have an existing VA LOANS loan at least seven months old.

Individuals with a current USDA loan can apply for the USDA’s streamlined assist refinance program.

One of the upsides of this program is that it doesn’t require a credit review, home appraisal, DTI calculation, and home inspection.

However, you must have an existing USDA loan at least 12 months old with no late payments over the period.

>> More: How to Refinance Your Mortgage

Is It Hard to Get a Government Home Loan?

No, it is easier to qualify for a government-backed mortgage compared to a conventional loan.

Government loans like VA loans and USDA loans do not require down payment, while most conventional loans require at least 5% down.

Also, it is easier to get government home loans like an FHA loan with a lower credit score and higher DTI ratio than conventional loansthat require a higher credit score and lower DTI.

When applying for a government-backed mortgage, you should reach out to an experienced local mortgage professional for assistance.

>> More: FHA vs. Conventional Loans 

Pros and Cons of Government Home Loans


  • Easier to qualify. Since most government-backed loans require a lower credit score, zero down payments, and are available to borrowers with a higher DTI ratio, they are pretty easier to get, even for a first-time homebuyer.
  • Lower interest rates. FHA, VA, and USDA loans are known to offer some of the lowest interest rates compared to conventional loans.
  • Lower mortgage insurance costs. When you take out a conventional loan, you’ll have to pay for private mortgage insurance (PMI) until you acquire 20% equity in your home. On the other hand, you don’t have to pay for mortgage insurance with a VA loan. While you may need to pay for mortgage insurance with USDA and FHA loans, it could end up cheaper than conventional loans.


  • More documentation: Depending on the type of government loan, you may need to present more documents than usual. It is common for lenders to request paystubs, eligibility certificate, proof of income, employment records, and credit reports with government loans.
  • Eligibility: Since government loans are designed to cater to a specific group of people, you may not qualify. Government loans like VA loans and USDA loans focus on military members and low-income individuals looking to buy a rural area. Although, FHA loan offers more flexibility compared to other government loans.
  • Minimum Property Standards: Unlike conventional loans, government-backed mortgages come with several property and location standards. For example, to get an FHA or VA loan, your home must meet specific strict safety standards. While USDA loans come are not available in all locations.

Bottom Line: Government Home Loans

Government home loans are a great source of home financing if you can meet the requirements.

Not only do government-backed mortgages offer borrowers affordable mortgage terms, but they also protect mortgage lenderswhen borrowers default.

From FHA loan, VA loans, and even USDA loans, government home loans are known to allow first-time homebuyers to become a homeowner at a lower cost.

Elijah Bishop
Elijah Bishop

Elijah A. Bishop is a Senior Personal Finance Writer who has been writing about real estate and mortgages for years. He has a Bachelors of Arts Degree in Creative writing from Georgia State University and has also attended the Climer School of Real Estate. He also holds a realtor license and has been in and out of the US mortgage industry as a loan officer. Bringing over 15 years of experience, Elijah produces content that analyzes ethnicities, race, and financial well-being. His areas of expertise are mortgages, real estate, and personal loans.