Qualifying for a mortgage these days can be tough. But before you throw in the towel, it’s worth checking all of your options — including government home loans. These loans — which are guaranteed or issued by a federal agency — could help you buy, refinance or improve your home if you’re eligible. The main choices include:
- FHA loans for borrowers with lower incomes and credit scores
- USDA loans for rural residents
- VA loans for service members and veterans
If you fall into one of these categories, it’s worth seeing if a government-backed loan could be right for you. Their features, which include low down payment requirements and flexible credit guidelines, can be especially helpful for first-time buyers, though these loans are often available to repeat buyers, too.
Government home purchase loans: An overview
FHA loans | USDA loans | VA loans | |
|---|---|---|---|
Designed for | Low credit scores or limited savings for a down payment | Low- and moderate-income buyers in rural areas | Military service members, veterans and surviving spouses |
Min. credit score | 500 or 580 (lower scores require higher down payment) | None set by the USDA, but lenders usually require 640 | None set by the VA, but lenders usually require 620 |
Min. down payment | 3.5% (score 580+) or 10% (score 500-579) | None | None |
Loan limits | $541,287 (low-cost) to $1,249,125 (high-cost) | Varies by county | Varies by entitlement |
Associated costs | Upfront MIP: 1.75%; annual MIP: 0.15% to 0.75% | Upfront fee: 1%; annual fee: 0.35% | Funding fee: 1.25% to 3.3% |
Government home loans for buying
FHA loans
🏠 At a glance:
- Down payment as low as 3.5%
- Credit scores from 500 accepted
- Mortgage insurance required (upfront and annual)
FHA loans are backed by the Federal Housing Administration. They’re designed for borrowers who have lower credit scores and less saved up for a down payment.
Credit score and down payment requirements
Credit score | Minimum down payment |
|---|---|
580+ | 3.5% |
500-579 | 10% |
Mortgage insurance premiums (MIP)
Every FHA loan requires mortgage insurance. This comes in two forms:
- An upfront MIP: 1.75% of your loan amount paid at closing or rolled into your loan.
- An annual MIP: 0.15% to 0.75% of your loan amount (depending on your down payment, loan amount and term) paid monthly.
🤓Nerdy Tip
Annual MIP can be canceled after 11 years if you make a down payment of 10% or more.Property and loan limits
- Property: Must meet FHA minimum property requirements, which include being “safe, sound and secure” (e.g., working utilities, a functioning roof, no water leaks or structural damage).
- Loan limits: Vary by county. Up to $541,287 in low-cost areas and $1,249,125 in high-cost areas.
» MORE: Best FHA mortgage lenders
USDA loans
🏠 At a glance:
- No down payment required
- Household income under 115% of county median
- No down payment required means lower upfront costs
- Property must be in an eligible rural area
USDA loans — which are backed by the U.S. Department of Agriculture — are designed for borrowers with moderate or low incomes buying in qualifying rural areas.
Income, credit and down payment requirements
- Income: Must fall under 115% of your county’s median household income.
- Credit score: No USDA minimum, but lenders generally require a credit score of at least 640.
- Down payment: None required.
Property and loan limits
- Property: Must be located in a USDA-designated rural area. The USDA designates an area as rural based on its population and whether it’s underserved by lenders.
- Loan limits: Set by the county. Check the USDA eligibility website to see whether your area qualifies and what the associated loan limits will be.
Guarantee fees
Unlike FHA loans, USDA loans don’t come with mortgage insurance. Instead, you’ll pay guarantee fees, which include:
- An upfront fee: 1% of the loan amount, which is paid at closing or rolled into your loan.
- An annual fee: 0.35% of the unpaid loan balance, which is split up and paid as part of your monthly payments.
Did you know...
The USDA also issues home loans directly to low- and very-low-income buyers who are without safe housing and can't otherwise get a home loan.» MORE: Best USDA mortgage lenders
VA loans
🏠 At a glance:
- No down payment required
- No minimum credit score set by VA (lenders typically want 620+)
- One-time funding fee (1.25% to 3.3%) instead of mortgage insurance
Backed by the Department of Veterans Affairs, VA loans are available to service members, veterans and some surviving spouses.
Credit score and down payment requirements
- Credit score: No VA minimum, but lenders generally require at least 620.
- Down payment: None required.
Certificate of Eligibility (COE)
A VA Certificate of Eligibility shows your duty status and service history, plus how much VA entitlement you have left. This is the amount that the VA will pay your lender if you default on your loan, which determines how much you can borrow.
Full entitlement | Remaining entitlement | |
|---|---|---|
When it applies | First VA loan, or a prior loan fully repaid and home sold | Currently repaying a VA loan, or a paid-off VA loan but you still own the home |
Loan limit | None; lender sets the cap | Same as your area’s conforming loan limit |
Funding fee
VA loans don’t come with mortgage insurance. However, you’ll pay a one-time funding fee. This can be paid upfront or rolled into your loan. It ranges from 1.25% to 3.3% of your loan amount, depending on your down payment and whether you’ve had a VA loan before. The fee is waived in some cases, such as if you’re getting VA compensation for a service-related disability.
» MORE: Best VA mortgage lenders
DATA: What's the Homebuying Climate this month?
NerdWallet's Homebuying Climate Index puts a familiar weather label on how favorable conditions are for home buyers.
For August, our analysis puts the Climate Index at 53.2 out of 100, keeping the index in Partly Cloudy territory for the 49th straight month as most variables hold relatively steady.
Read more about the factors affecting this month's index to gauge how they might affect your homebuying plans.
Explore NerdWallet's Homebuying Climate Index
Proprietary research based on the latest federal data
Government home refinance loans: An overview
Loan program | Details |
|---|---|
FHA refinances | All three options carry the same MIP structure (1.75% upfront, 0.15% to 0.75% annual). Streamline refis skip the appraisal; rate/term and cash-out require one. Only rate/term and streamline may qualify for the MIP refund credit. |
USDA streamlined assist | For refinancing guarantee and direct loans. No appraisal required, same guarantee fees as any USDA loan (1% upfront, 0.35% annual). |
VA refinances (IRRRL and cash-out) | IRRRL and cash-out both carry the funding fee (1.25% to 3.3%); only cash-out requires a new appraisal. |
Government home loans for refinancing
FHA rate and term refinance
With a rate and term refinance, you pay off your original mortgage with a new FHA loan that has a different rate and term (e.g. switching from a 15-year to a 30-year term).
A rate and term refinance for an FHA loan will likely require a new appraisal. You’ll also still pay both upfront and annual MIPs. However, if you’re refinancing an existing FHA loan within three years of taking it out, you might be eligible for a refund credit that lowers the upfront MIP on the new loan.
FHA streamline refinance
An FHA streamline refinance lets you change the rate and terms of your loan, but with less documentation and underwriting.
Eligibility requirements
- Have your original FHA loan for at least 210 days.
- Make at least six monthly payments during that period.
- Not be delinquent on your loan.
- Refinance must provide a net tangible benefit (e.g., a lower rate or shorter term).
Credit-qualifying vs. non-credit-qualifying
Here are how the two FHA streamline refinance options compare.
Credit-qualifying | Non-credit-qualifying | |
|---|---|---|
Credit check? | Yes | No |
New appraisal required? | No | No |
Rate | Lower (less risk to lender) | Higher (more risk to lender) |
Use case | Required if removing a borrower from the loan | Standard streamline |
In certain situations, lenders might require some measure of credit or income review of their own outside of the FHA’s rules.
FHA cash-out refinance
An FHA cash-out refinance lets you convert some of your home equity into cash. You can refinance an existing FHA loan or another type of mortgage with this option.
Your lender will use your loan-to-value (LTV) ratio — how much you want to borrow compared to your home’s value — to determine how much you can actually borrow. The maximum permitted LTV ratio for an FHA cash-out refinance is 80%.
Eligibility requirements
- Owned and lived in the home for at least 12 months (unless you inherited the home and haven’t used it as an investment property).
- Made all required monthly payments during that 12-month period, on time.
USDA streamlined assist refinance
A USDA streamlined assist provides a simpler path to refinancing a USDA guaranteed or direct loan. Most of the time, no appraisal or credit check is needed, which can help to speed up the process. You’ll also pay the upfront and annual guaranteed fees with your new loan.
Eligibility requirements
- Closed on your existing mortgage at least 12 months before applying.
- Made all of your payments during those 12 months.
- Interest rate on the new loan must be the same or below your current rate.
- Must receive a net tangible benefit of at least $50 through the refinance.
VA Interest Rate Reduction Refinance Loan (IRRRL)
A VA Interest Rate Reduction Refinance Loan, or IRRRL, is the VA’s streamline refinance option. This lets you refinance an existing VA loan and can help you lower your interest rate, reduce your monthly payments and switch from an adjustable to a fixed rate. Like with your first VA loan, you’ll have to pay the funding fee again, either upfront or rolled into the new loan.
Eligibility requirements
- Currently live in or previously occupied the home that secures the loan.
- Provide your COE (you can reuse the same one from your first loan, or you can ask your lender to show the previous use of your entitlement).
VA cash-out refinance
With a VA cash-out refinance, you can refinance an existing VA loan or other type of mortgage and convert some of your home equity into cash.
Eligibility requirements
- Qualify for and provide your COE.
- Live in the home that you’re refinancing.
You might have to pay the funding fee as part of your loan costs, as you would with other VA loans. The lender will also arrange for a new appraisal to determine your home’s value.
Government-backed mortgages for home improvements
In addition to buying a home, several government-backed programs help cover the cost of renovations, repairs and energy-efficient upgrades.
FHA home improvement loans
The FHA 203(k) mortgage allows you to buy or refinance a home and include the cost of improvements in the same loan.
An FHA Title 1 property improvement loan is for repairs and improvements.
VA renovation loans
You must have a VA mortgage to qualify for a VA renovation loan (also known as a VA rehab or supplemental loan). This option can be used to finance projects that improve the safety and livability of the home. The loan cannot be used for luxuries, such as swimming pools or barbecue pits.
FHA and VA energy-efficient loans
The FHA and VA back energy-efficient mortgages, which allow you to upgrade your home with money-saving modifications that use less energy.
Rural housing repair loans and grants
Another option for rural residents is the USDA Section 504 Home Repair program. If you can't get a loan anywhere else and are on a tight budget, this loan can help with improvements and emergency repairs. Grants are available to those 62 and older.
Other government home loan programs
A few additional programs serve more specific groups of borrowers, including Native American homebuyers and homeowners recovering from a natural disaster.
Home loans for Native American veterans
Native American veterans, or veterans whose spouse is Native American, can use the VA’s Native American Direct Loan program to buy, build or improve their home or refinance a mortgage. The residence must be on Native American trust land.
Section 184 Indian home loan
This loan for Native Americans, Alaska Natives and members of other designated entities or tribes allows low down payments and relaxed credit standards. The mortgage can be used to build a house, buy an existing home, pay for improvements or refinance a mortgage.
The Department of Housing and Urban Development's Section 184A program offers the same benefits to Native Hawaiians. Find complete details and participating lenders at the HUD Section 184 page.
Home and property disaster loans
In a county declared as a disaster area, homeowners may qualify for low-interest loans to repair or replace their primary residence and personal property. The program is implemented by the U.S. Small Business Administration.
FHA loans for disaster victims
A Section 203(h) loan, insured by the FHA, offers mortgages to homeowners to rebuild or replace their homes after a presidentially declared disaster. See an FHA lender for details.
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