How to Qualify for a Government Housing Loan

By Don Rafner

While the government does not provide housing loans directly, it does insure mortgage loans through its Federal Housing Administration (FHA) and Veterans Administration (VA) loans. These loans often come with benefits. An FHA-insured home loan, for instance, requires a down payment of just three percent of a home's asking price. However, you will have to meet certain requirements to qualify for both FHA- and VA-insured loans.

Gather the paperwork you'll need to verify your gross monthly income and your monthly debt obligations. Whether you're applying for an FHA- or VA-insured loan, you'll need to make copies of your two most recent federal income tax returns, the last two months' worth of paychecks, credit card bills, savings and checking account statements, and other loan statements.

Contact a mortgage lender and explain that you'd like to apply for a mortgage loan that is insured by either the FHA or VA. This lender will ask you some basic questions: What is your Social Security Number? Are you applying for a loan on your own or with a co-borrower? What is your estimated gross monthly income?

Request a Certificate of Eligibility if you are applying for a VA loan. This form, which you can access online at the link provided in the "References" section of this article, will provide you with a certificate that verifies your military service. You can also ask the lender to pull your Certificate of Eligibility for you if the U.S. Department of Veterans Affairs has enough data to verify your service.

Make sure you meet the eligibility requirements for an FHA-insured loan if you are applying for one of these. You must own a home that has just one to four units. The amount of your loan is limited according to the part of the country in which you live. For instance, in Birmingham, Alabama, you can take out a maximum loan $271,050. In But in Chico, California, you can take out a maximum loan of $400,000. To find out the loan limits in your region, visit the link included in the "References" section of this story.

Give your lender permission to check your credit. Lenders today rely on your three-digit score to determine if you are a risky or safe borrower. If you've missed several credit card payments or have defaulted on car loans in your past, your credit score will drop. Traditional lenders consider scores under 620 to signify risky borrowers. These borrowers either will not qualify for a mortgage loan or will have to pay high interest rates on their loans. Borrowers with scores of 740 or higher will qualify for the lowest interest rates.

Send the paperwork from Step 1, along with your Certificate of Eligibility if you are applying for a VA-insured loan, to your lender. Your lender will study these to determine if your gross monthly income is high enough, and your debts low enough, for you to make your monthly mortgage payments.

Agree to a closing date to sign your loan paperwork if your lender approves you for either a VA- or FHA-insured mortgage loan. At the closing table, you'll sign the paperwork that makes your mortgage loan official. You'll also have to pay any origination fees that are due.

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