A Government Loan is a mortgage loan that is guaranteed or insured by an agency of the federal or state government such as VA, FHA, or USDA. Government loans are also known as government-backed loans.
Government loans are issued by private lenders and not by the government agency itself. The private lenders originate the loans as per the guidelines of the government agency and then obtain insurance or guarantee from the government agency. The government’s insurance or guarantee protects the lender against losses arising out of borrower’s default. The reduced risk allows the lender to offer loans to the borrower at a lower interest rate.
The most common government loans are:
Updated: May 25, 2010