Most Common Government Loan Programs

The government exists to help the citizens in their time of need and for this reason they provide affordable loan programs. Most citizen turn to government loan programs as the first option when they need to seek finance or funding. Government loans are easy to qualify for as compared to loans offered by banks and are usually at a rate lower than the prevailing market rate. But finding the right type of government loan is a matter of awareness of the programs offered by the government. This article may help you find out the right type of loan if you are looking for one.

How Government Loans Work

First it is important to understand how government loans work. Government does not directly lend money to the people, this is what most people get wrong. Instead, the loans are given out by private banking institutions. So what is the difference? The difference is that when private banking institutions give out loans to the people on government programs, the loans are backed by a guarantee by the government. This means that when anyone takes out a loan from a private bank on a government program, the guarantee for that loan is given by the government so that in case the borrower defaults on payment, the government will make the loss good for the bank. 

Since, the guarantee provided by a government is one of the highest level of guarantees that can be provided, this lowers the risk profile of the loans and thus banking institutions offer loans at lower rates as compared to loans given out to non government backed loans. 

Some of the most common types of government loans are:

  • Student loans
  • Housing loans, including disaster and home improvement loans
  • Business loans, including farms and ranches

Student Loans

The government helps out students with their education expenses as it is one of the fundamental rights of human beings. Government provides help to students if they need to pay for school, college or university education. Federal student loans have low eligibility requirements and have flexible terms and conditions which make them particularly attractive for students and their parents. Some of the most common education loans include.

William D. Ford Federal Direct Loan Program:  This is a federal ‘Direct Loan’ program. This means that schools receive funds directly from U.S. Department of Education and then disburse them among the students who are eligible for the program. Important to note that every school is not registered with the program, so if you are looking to apply for this program then you should check the status of your school first. 

Stafford Loan: Stafford loans are a part of the William D. Ford directly loan program, these loans are low-interest loans that help cover the cost of higher education at college, university, community college, or trade, career, or technical school. The mechanism of the loan is similar to the Direct Loan program. Funds are disbursed by the Department of Education to the participating schools which then disburse them to eligible students. 

PLUS loan: A Parent Loan for Undergraduate Student (PLUS) loan a loan or government funding option available to the guardians or parents of students who are still dependent or professional students studying under graduate students. The mechanism of the loan is similar to the Direct Loan program. Funds are disbursed by the Department of Education to the participating schools which then disburse them to eligible students. The schools or institutions apply the funds first towards major expenses such as tuition fee, books and other expenses and the remainder is disbursed to the students. 

Housing Loans

Everyone has a dream of owning their home and government can play a major role in achieving this milestone, after all providing affordable housing is one of the key aims of any government. For this purpose the United States government has several programs to help home buyers and home owners. 

First-Time Homebuyer Programs

First time homebuyer programs are, as the name suggests for first time home buyers. These loans have low down payment and low interest rates to facilitate the home buyers. The loans have certain terms and conditions that must be fulfilled like a steady income stream. 

FHA Loans

Federal Housing Association loans are the most common loans for borrowers who want to borrow for their home. FHA loans carry a very low down payment (around 3.5%) and low interest rates thus they provide financing up to 96.5% of the value of the property. The government doesn`t directly provide the fudns, instead the borrowers are directed to government approved mortgage brokers or lending institutions which then process the loan with a guarantee by the government. In this way the mortgage becomes backed by government surety. 

Home Improvement and Repair:

FHA 203(k) loans are a type of government backed mortgage available for home repairs, improvement and maintenance. This program is for low to middle income earning families, they are encouraged to buy properties in need of repair or major over hauls and in order to cover up the cost of repairs the government provides them with this loan. This improves the life of the building by allowing people to buy old properties and renovate them. 

PACE Loan:

Property Assessed Clean Energy (PACE) programs are available for home owners looking to retrofit their homes to become earthquake or hurricane resistance and to install solar panels for energy efficiency. If the changes under this category qualify as major changes then the home owners can be eligible for PACE loans. 

SBA7(a) Loan 

If you are a small business owner then you can apply for the SBA7(a) loan, the loan carries certain requirements like the ability to generate profits and a convincing reason for the loan. The loan can provide funds of up to $2 million. The mechanism of the loan is similar to that of FHA loans. The loans are processed by private lending institutions and backed by government surety. 

>> See Government Loan Options For Your Here

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