Housing grants and federally-subsidized home loans help low-income families achieve homeownership. The two largest federal loan programs are FHA loans and USDA loans. An FHA loan is a type of home loan that is secured by the Federal Housing Administration through FHA-approved lenders.

This loan program helps reduce the eligibility requirements that a family must meet to obtain a mortgage, including income, debt-to-income ratio, and creditworthiness requirements by reducing the financial risk to lenders. Created in 1934, this program has aided millions of families in the path to homeownership since the founding of the program.

Federally-Subsidized Home Loans
federally subsidized home loans

Additionally, FHA loans are compatible with most housing grants, including first-time homebuyer grants and local down payment and closing cost assistance programs.

While FHA loans make it easier for families to qualify for a mortgage, households must still meet a lender’s reduced eligibility requirements to obtain a loan. As a result, certain factors can make it more difficult for a borrower to qualify, such as previous bankruptcies, exceedingly low credit scores, or a lack of credit history. 

Borrowers must also provide a down payment, but down payment minimums are reduced for borrowers applying for FHA loans. Borrowers who have a credit score of at least 580 are only required to provide a down payment of 3.5 percent.

However, mortgage insurance premium payments will still be required once approved for a mortgage. In addition to new mortgages, the FHA provides one of the best home refinances with cash-out options nationwide. 

FHA cash-out refinance lets homeowners refinance and cash-out equity in their homes. As with any FHA loan, you’ll need to find approved FHA cash-out refinance lenders to take advantage of this federally-subsidized home loan program.

Like FHA loans, most housing grants can be used in conjunction with a loan from USDA loan programs. The United States Department of Agriculture (USDA) offers low and moderate-income families the opportunities to become homeowners through many loan and grant programs, including the Single-Family Housing Guaranteed Loan Program and the Single-Family Housing Direct Home Loans. 

Each program has income guidelines and citizenship requirements that must be met to qualify for a loan. Additionally, housing grants are available to low and very low-income households that meet additional criteria.

Many of the USDA loan programs are only usable in qualifying rural areas. When it comes to USDA-backed loans, the USDA guarantees a portion of the loan to reduce a lender’s financial risk and entice lenders to provide more favorable eligibility requirements and loan terms to prospective borrowers.