Key takeaway

If you’re exploring homebuying options, you’re bound to come across names such as HUD, FHA, Freddie Mac, and so on. Most of these federally backed companies and organizations work with local lenders to offer affordable and accessible loans for homebuyers.

When you begin talking to potential lenders and exploring your mortgage options, you may come across unfamiliar names. HUD. FHA. Fannie. Freddie. Learning about these groups is essential because many of them back types of mortgages that may be appealing to first-time homebuyers. Here’s what you need to know about these groups — and don’t forget you can ask your home mortgage consultant to explain more about what they do and whether you may qualify for any of their programs.

Other housing-related industry organizations

Learn how they help

Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are federally backed home mortgage companies. While they don’t issue their own mortgages, they work with local lenders, purchasing and guaranteeing mortgages so that lenders have the support to offer affordable options on conventional, conforming loans. In addition, each company offers a unique homebuying program for low-income buyers, based on how HUD sets the income targets for low-income households: Freddie Mac’s Home Possible® and Fannie Mae’s HomeReady®. Both of these programs offer borrowers the ability to make down payments as low as 3% and accept flexible funding from various sources, which may help first-time homebuyers concerned about having enough money to make a large down payment. Each program has its own income limits, homebuyer education and mortgage insurance requirements, but they share the same goal of making housing affordable and accessible for low-income families.

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

HUD’s primary goal is to advocate for fair and equal housing. A federal agency, HUD supports and operates numerous housing programs that support homeownership, increase safe and affordable rental housing, reduce homelessness, and fight housing discrimination.

Because of its wide array of programs, HUD-certified housing counseling agencies can be a great resource for homebuyers to use to find federal mortgage programs. HUD’s Good Neighbor Next Door program may be especially helpful for law enforcement, teachers, firefighters, and emergency personnel. Homebuyers in these professions may be able to purchase homes in revitalization areas for a cost well below list price, provided they meet certain criteria. HUD also oversees the Federal Housing Administration (FHA), a go-to resource for first-time buyers.

HUD, through its FHA-insured mortgage programs, served more than 990,000 single-family homebuyers in fiscal year 2019.
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Federal Housing Administration (FHA)

The FHA, which is part of HUD, can be a beneficial organization for first-time homebuyers. Some previous homeowners who are looking to purchase another house as their primary residence may also qualify for FHA programs. While the FHA doesn’t make loans, it insures mortgages by approved lenders, giving the lender more confidence to extend loans to borrowers. FHA-backed loans are typically available with low down-payment options and may be available even to borrowers with lower credit scores. FHA mortgages do require mortgage insurance. There are still requirements you will need to meet to receive an FHA loan, stipulated by the FHA and the lender. Typically, these requirements will include the ability to make a down payment, debt-to-income ratio, and property approval.

29.9 %
Percentage of first-time homebuyers who financed their purchase with an FHA loan in the second quarter of 2020.
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U.S. Department of Veteran Affairs (VA)

VA-backed loans are available to active service members, veterans, and surviving spouses interested in buying a new home, refinancing their home, or even upgrading their existing home. Offered through lenders such as banks, VA-backed loans are insured by the VA, which can allow for benefits such as not requiring a down payment or mortgage insurance. Its backed loans include a purchase loan, an interest-rate-reduction refinance loan, and a cash-out refinance loan. The Native American Direct Loan is administered directly through the VA for Native American veterans and their surviving spouses. The VA will stipulate credit and income requirements, but for the most part, VA loans are very generous and accessible.

Number of VA-backed home loans issued in the second quarter of 2020
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U.S. Department of Agriculture (USDA)

During your research, you may hear about the Rural Development division’s Single Family Housing Guaranteed Loan, or Section 502 loan. They are more commonly called USDA loans. USDA loans require no down payment and typically offer attractive interest rates for eligible rural and suburban homebuyers. The USDA insures these loans, which allows participating lenders to forego a down-payment requirement. They also offer home improvement loans and grants for people interested in upgrading their homes. USDA loans are only available on properties in certain locations, however. The home must be in a rural area, but small towns and even suburbs may be considered rural.

Number of families who were able to buy or upgrade their homes in 2017 with help from USDA loans
Source: Nerdwallet
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Check to see if you’re eligible

Government programs exist in part to help first-time homebuyers. By providing assurances to lenders, they allow lenders to offer mortgages to those who may otherwise not qualify, or offer lower interest rates or low-down-payment options. However, all programs have certain qualifications that you must meet to be eligible.

Talk to your home mortgage consultant about the different types of loans offered by lenders you’re considering. Then check to see if you qualify for any specialty programs. Many traditional lenders also offer their own programs for first-time homebuyers.

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