Types of Mortgages  >>  FHA for First-Time Buyers

FHA Government Home Loans

© 2009, Brandon Cornett

Summary: This article explains how to obtain a home loan that is backed by the government, and why it's worth considering if you are a first-time home buyer. In particular, we will examine the FHA mortgages that are so popular among first-timers.

On the surface, a government home loan sounds like a great tool for mortgage financing. By applying for a loan through the U.S. government, you would have an easier time qualifying and could save a lot of money. Right? Well, sort of. In reality, a lot of home buyers don't understand what government mortgage loans are or how they work. That's where this guide comes into the picture.

In this lesson, we will discuss government mortgage programs and how they work. In particular, we will focus on the FHA home loan and why it's a good option for first-time home buyers in the U.S.

What is a Government Home Loan, Anyway?

Let's talk about the terminology being used here, just to prevent any confusion. In reality, the government doesn't really make home loans directory to consumers. Instead, it insures or guarantees the loans made by primary lenders. For example, if I apply for an FHA mortgage through Wells Fargo, that particular lender will be the one giving me the money. But this type of home loan is backed by the federal government, so Wells Fargo would be more willing to give me the money (since the loan is insured by Uncle Sam).

The Benefits of FHA Loans

The government insures mortgages through several different programs. But the FHA program is the most popular among home buyers. In a moment you will understand exactly why these home loans are so popular, especially among first-time buyers.

The primary benefits of an FHA mortgage are as follow:

1. It's easier to get approved for one, when compared to non-FHA loans.
2. You can get approved with less money down, typically 3.5% of the loan amount.
3. You could save money on closing costs. *

* In the past, home buyers used to save a significant amount on closing costs through the FHA government home loan program. But this has changed in recent years. You might save a hundred dollars or so on certain tax fees, but that's about it. So the primary benefits of the FHA mortgage are the first two items listed above -- (1) easier qualification and (2) smaller down payment.

Now you can see why these government-backed loans are so popular among first-time home buyers. Typically, a first-timer does not have as much money to put down (compared to somebody who has made a profit from a home sale). Without government backing, most lenders will require you to pay at least 10% down on the mortgage loan, and sometimes even more. But through the FHA program, you can pay less money down -- as little as 3.5% of the purchase amount.

Applying for a Government-Backed Mortgage

In general, the process of applying for an FHA government home loan is the same as any other type of mortgage. The only big difference is that you have to start by choosing an FHA-lender. You can find a list of these lenders on the HUD website, or you can use the LendingTree link in the box provided below.

It's also a good idea to start gathering your financial documents, if you haven't done so already. You can start the application process online, to see if you even qualify for an FHA loan, and I recommend that you do. If you get a "green light" from this initial step, you'll be asked to provide documentation about your finances. This includes (but is not limited to) your W-2 statements for the last two years, pay stubs or records for the last two years, bank statements and other items.

See how to apply for a mortgage for more information on required documents.

Related Articles:
FHA Loan Requirements
Closing Costs on FHA Mortgages

---

About the Author Brandon Cornett is a real estate writer and the publisher of Home Buying Institute. He has been educating consumers on housing-related topics since 2004.