When looking to buy property, most people cannot afford to buy properties outright without some form of loans. Many banking establishments have become cautious when lending due to the problematic and unpredictable economic climate. Therefore, the government has put in place a system that allows lenders (banks, etc.) to lend the money and they are protected from defaults on payments.
Government backed loans are a very attractive proposition and as you would imagine, the financial institutions and banks have embraced the concept readily. Clearly, no one wants to default on payments but there are times when there is no better option.
This could be due to losing income through incapacitation or illness. The government backed loan ensures the lender is insured against loss through defaulted payments.
Subsidized government loans
There are a variety of these and qualifying for them is relatively simple and for the most part of them, there is no need to make a down payment. However, there are criteria to be met, including citizenship status.
- Looking for a mortgage?
As more and more people are finding it difficult to obtain a mortgage, the government has introduced a scheme whereby low down payment mortgages are available. Traditionally, it was necessary to put 20% of the purchase price as down payment and for many people; this was simply beyond their means.
With the introduction of the government backed mortgage loans, the down payment figure has been reduced to as low as 3% of the purchase price. The mortgage lenders are happier to lend when these loans are backed by the government as they know they will receive their money even if the mortgage applicant defaults on payment.
The mortgage applicant then is able to go ahead and purchase a property so it is a win-win situation.
To be able to qualify for a low down payment mortgage, an applicant must have enough income to be able to afford the monthly financial repayments and their credit history is also taken into account. Additionally, they must hold enough money for the extra costs including the down payment and the closing costs.
- University government loans
Everyone loves the opportunity to enter into higher education and there are student government loans available to help you meet your daily expenses and tuition fees. These loans continue to be interest free whilst in full-time education but interest has to be paid on the government loan after 400 weeks. Students with disabilities are allowed an extra period of grace.
- Thinking of starting up in business?
There is good news for those who are considering starting their own businesses. The government backed loan scheme extends help in the form of small business loans. Many potential businesses have been under the weather due to the lack of funding. A business idea may be viable but if funding is unavailable then business growth is rarely viable.
The government recognizes this and encourages lending institutions to consider loan application by small businesses by backing the loans up. This can be as much as 85% and in real terms, this means the financial agencies are more or less guaranteed to recoup all their money should a business fail or stop making payments for their loans for any reason.
Home loans
There are times when extra money is required to address major issues in a home. In addition, if your family size has grown but you cannot afford to move, the alternative may be to increase the size of the dwelling accordingly. This takes extra finance strength which may not be readily available from your everyday income.
Many people do not or are unable to save for the proverbial “rainy day” and that is where government home loans can help. All cases are taken into account on their individual merits and there may be only certain institutions that are authorized to lend these funds.
There are criteria to be met as you would expect, including the fact that the house should be in a reasonable state of repair to start with. In addition, the ability to repay the loan obviously is taken into account.
Even though the government does protect the lending institutions against defaults on payment, it would be illogical to lend to someone who simply did not have the means to make the repayments. Circumstances do change and can be beyond the control of the lender or the applicant thus home loans applications are reviewed in great details before one can be approved.
By: Bradley Barks
About Brad
Brad is our lead researcher and editor - he enjoys business, meditation, being active and always learning - his goal is to successfully help you research, find, secure, and enjoy grants and scholarships.
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