What is a mortgage loan guarantee program?

About mortgage guarantee programs

Both the Federal Housing Administration (FHA) and the Veterans Administration (VA) offer home mortgage guarantee programs. A loan guarantee is not a loan. Instead, the guarantee means that lenders can rest assured that if the mortgage loan goes into default and winds up in foreclosure, the guaranteeing organization will pay the remaining balance to the lender.

Not every lender will work with an FHA mortgage loan or a VA guarantee loan. There are additional specifications that must be met and both the FHA and the VA limit the number of fees that can be imposed on a borrower.

Borrowers can potentially manage to get approved for an FHA or VA mortgage with little or no down payment. FHA loans are available to applicants within certain income levels, and VA loans are only available to veterans who served a specific amount of time within the military.

Interest rates for both these types of loans may be slightly higher than interest rates on conventional mortgage loans. These can both be great programs for applicants who do not have substantial incomes or down payments and fit the criteria needed.