Are Government Loans Worthless?
We recently heard that another lender in our area used the word “worthless” in reference to government loans. We couldn’t believe that choice of words over here at RMN because it’s simply not true! It’s no wonder that buyers and Realtors are sometimes confused about financing options! We don’t mean to offend, but if spreading the right information means rocking the boat a little—so be it!
That’s what we’re passionate about—giving you correct information so you can make an informed choice as a borrower or relay correct information if you’re a Realtor. We want you to trust us to lead you in the right direction with loan options, and that means laying it all out there. Let’s go through a couple of these “worthless” government loans so you can see that not only are they NOT worthless, they actually help a lot of home-buyers and put them in the best position possible for home ownership.
What’s a Government Loan?
Government loans are insured or backed by the federal government. Lenders (like us!) issue government loans for mortgages, and there are some fantastic options for those that qualify. People sometimes take the word “government” to mean that these loans are for those with low credit or no money. Nothing could be further from the truth! Fact is, you have to already be a highly qualified borrower in order to use one of these loan options. A government loan might just happen to fit a qualified borrower’s specific situation the best — And we always suggest what’s best for our clients!
The context behind the use of the word “worthless” by this other lender was that a conventional fixed-rate option was being advertised as an alternative to government loans. Conventional loans do not have any government backing, so they do not fall under the umbrella of government loans. Don’t get us wrong, conventional fixed-rate loans can be great too, and for certain buyers, they are definitely the right choice. But advertising about a good conventional loan product doesn’t have to mean putting down other great loan options!
VA loans are a great example of a government loan that we think is amazing. To call a VA loan anything but is just inaccurate. We’re talking 100% financing, 30-year fixed rate — how is that worthless? Tell that to the 2,745 Veterans who purchased a home in Iowa in 2022 using this well-deserved benefit. Or, the 13,113 Veterans who purchased a home in Iowa in the last five years! Hardly “worthless” to those Veterans.
USDA Rural Development
USDA/Rural Development loans are another example of a great loan option that shows us its worth over and over again. That’s 100% financing, 30-year fixed rate, PMI calculated on 35 basis points (that’s $58/month on a $200K loan amount)… Sign us up! There were almost 1400 homebuyers that used this program last year alone! This program has made homeownership a reality for so many people considering down payment is one of the biggest “hurdles” for homeowners these days!
As you can see, there is a ton of worth in government loans, and no one is pushing anyone to get one, but we do offer them to people who qualify because they really ARE great options that help put people in homes. It begs the question, why would a lender advertise government loans as something they do to then talk down on them? Doesn’t make sense to us! Comments like these typically come from people who don’t quite have all the facts.
It might be more accurate to say some lenders are worthless at doing government loans, as many of us have witnessed time and again. Trust a lender who dreams about these loan types as a better option to serve more buyers with solid financing.
So if you ever hear government loans referred to as “worthless” and don’t understand why, please ask a lender who regularly originates government loans, and we’ll set you on the straight and narrow. We really do make it our mission to provide each buyer GREAT options, and that can include government loans–end of story!