"Government Mortgages" are generally considered to be those loans insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA). 

FHA

The National Housing Act of 1934 established a Federal program to encourage and facilitate home ownership in response to the Depression's devastating impact on real estate lending.  The Federal Housing Administration (FHA) was created to administer the program by providing insurance protection to private lenders who originated mortgages.  FHA is now a part of the Department of Housing and Urban Development (HUD).

FHA is not a direct lender, but provides for insuring low-interest, low-down payment, assumable mortgages against foreclosure loss.  The Mortgage Insurance Premium (MIP) or Mutual Mortgage Insurance (MMI) collected on each FHA loan, as established by HUD, helps defray the cost of the insurance program.

FHA has made buying a home easier and less expensive than other types of real estate programs by allowing more borrowers to qualify for a home loan. FHA loans are not restricted to just the first-time home buyer, but the loans are very well suited to them.  Many others who currently own a home and who are looking to move up use this program as well.

FHA loans have several restrictions: You can not have more than one FHA loan at any one time, and you have to live in the property. There are also maximum loan amounts that depend on the county the property is located.  Other loan limits apply for two, three and four-unit properties.

Advantages of the FHA loan programs are:

• Minimal down payment and closing costs - 3% of the purchase price, or zero down using the Access Program!
• Easier credit qualifying guidelines than conventional loans - No minimum FICO score, or no score at all!
• More lenient debt-to-income ratios and job requirements - more debt allowed than conventional loans!

FHA loans can be used to purchase a single family home, a condo, a townhome or a PUD. There isn't a maximum sales price restriction, but there is the maximum loan limit based on the county the property is in.  If you currently have an FHA loan, there are streamline and cash-out refinances available. Easily change the rate and term of your current. There is even a no-cost refinance option available.  Streamline refinances have reduced paperwork and costs. And there are no pre-payment penalties.

The loan programs available include:

• Fixed rate - 30 and 15 year fully amortized.
• Adjustable rate - 1 year, 3/1 and 5/1 Adjustable Rate Mortgages (ARM). These are some of the best ARMs available as they only have a 1% adjustment interval cap rate and a 5% lifetime cap. 
• FHA 2/1 Buydown - This has the stability of a fixed rate loan with the benefit of a lower initial interest rate and payment.
• FHA Access Program - This program is available only in California. It provides two loans; one at 97% of the purchase price (a traditional FHA loan) and a second mortgage, which covers the closing costs, prepaids and any discount points, up to a Combined Loan To Value (CLTV) of 105%* of the sale price. It does not cover the required 3% down payment/investment (either from the borrower's own funds and/or gift funds from acceptable sources). The second mortgage is amortized over twenty years at a competitive interest rate. Income restrictions apply on this program.  (*NOTE: Loans on certain California properties, located in identified declining market areas, will be subject to a 5% reduction to the maximum LTV/CLTV permitted by this program. Please contact your loan representative for a list of the cities/counties affected by this guideline.)

VA

The Veterans Administration (VA) loan guarantee program was created in 1944 to help service personnel returning home from World War II obtain no-down payment home financing at reasonable interest rates.  Since that time, any veteran who has served a minimum time in active duty in a regular component of the United States Armed Forces can become eligible for VA benefits for use toward the purchase of a home.  Unmarried, surviving spouses of veterans who died as a result of service injuries are also eligible for VA financing, as are the spouses of MIAs or POWs who were on active duty and listed as missing for more than 90 days. 

Like FHA, VA is not a direct lender.  It guarantees a certain portion of the loan amount to enable private lenders to make 100% loans with some protection against foreclosure loss.  A VA funding fee is paid to the Veterans Administration to help offset its costs of the loan program.

There is one main difference between FHA and VA loans. With a standard VA home loan an eligible Veteran can truly purchase a home with almost no cost! Except for the Jumbo VA loans, no down payment is required - 100% of the purchase price can be financed!  And if the seller agrees to pay closing costs, you can literally purchase a home with very little out-of-pocket expense!

The maximum loan amount for 2007 is $417,000. The Jumbo programs requires a down payment of up to 25% depending on the sales price.  Refinances for rate and term reductions are streamlined - there are no cash-out refinances.

The Veteran must have proof of eligibility, which is issued by the VA in the form of a Certificate of Eligibility. There is no mortgage insurance to be paid like in other low down payment programs and no prepayment penalties for early pay-off.

The loan programs available include:

• Fixed rate - 30, 20 and 15 year fully amortized
• Adjustable Rate - 3/1 and 5/1 ARM programs

Once funded, most FHA and VA loans are “pooled” into Government National Mortgage Association (GNMA or Ginnie Mae) mortgage-backed securities and then sold into the secondary mortgage market with guarantees by GNMA which represent the full faith and credit of the Federal Government.  Ginnie Mae is a division of HUD.