As the number of available homes increases, more borrowers are turning to government-backed mortgages for their financing.
While economic uncertainty has held back many would-be homebuyers this spring, others who feel more confident about their personal finances are looking at the larger number of homes for sale and preparing to make an offer.
Applications for government-backed loans, including FHA and VA mortgages, jumped 40% year-over-year during the first week of May 2025, according to the Mortgage Bankers Association. Overall, there was an 18% increase in applications for purchase loans compared to that same week in May 2024. In May 2025, approximately 17% of all mortgage applications were for FHA loans, and 13% were for VA loans.
One reason for the increase in purchase loan applications: More homes are available for sale, giving buyers more hope that they may be able to find a home to buy.
According to theNational Association of Realtors, at the end of March there were 1.33 million existing homes available, up 8.1% from February and 19.8% from one year ago. That represents a 4.0-month supply of homes if the current sales pace continues, which is higher than the 3.2 months of supply available in March 2024 but still well below what’s considered a balanced market of about six months’ supply of homes.
However, even as existing home prices have risen, the median list price for a newly built home in the first quarter of 2025 declined slightly (0.3%) year over year to $448,393, according toresearch by Realtor.com, primarily because builders are constructing smaller homes.
In addition, builders often offer a mortgage rate buydown as part of their incentives for buyers, which makes a new home a potentially more affordable option. In 2023 and 2024, new-home buyers paid about half of a percent lower mortgage rates than existing-home buyers, according to the report.
Still, affordability issues continue to plague buyers, particularly first-time buyers. Government-backed loans can be a solution for financing challenges.
FHA loans offer greater flexibility for borrowers with lower credit scores to qualify and to pay lower mortgage rates. Unlike conventional mortgage loans, FHA loans (insured by the Federal Housing Administration) charge the same rate to all borrowers who qualify rather than basing the rate on their credit score.
Conventional lenders offer mortgages with rates on a sliding scale that vary according to numerous factors including your credit score. The chart below shows the difference in mortgage rate, monthly payment and interest paid over the life of the loan for a 30-year fixed-rate loan for $400,000 depending on the borrower’s credit score.
The FHA rate for a 30-year fixed-rate loan was 7.10% on that same date, which means that even borrowers with a credit score of 600 or less would pay the same rate as someone with a 760 or higher credit score.
Generally, FHA and VA mortgage rates are slightly lower than the interest rates on conventional mortgages. The VA loan program (guaranteed by the Veterans Affairs agency and available to current and former members of the military) doesn’t require lenders to adjust rates by credit score, although some VA lenders may do so when assessing borrower risk.
Other features of VA and FHA loans that make them attractive include:
Lower down payments. VA loans are available with zero down payment and FHA loans require a minimum of 3.5% for borrowers with a credit score of 580 or above. Borrowers with a lower credit score must make a down payment of 10%.
Higher loan limits. FHA loan limits vary by county, with a standard borrowing cap of $524,225 for one-unit homes in most areas and a higher limit of $1,209,750 in high-cost areas. VA loans are not limited for borrowers eligible for their full VA entitlement.
Flexible debt-to-income ratios. Your debt-to-income ratio compares your minimum monthly payment on all debts with your gross monthly income. Ideally, your debt-to-income ratio is 36% or below, but conventional lenders generally qualify borrowers with a maximum debt-to-income ratio of 45% to 50%. FHA lenders sometimes allow borrowers to have a debt-to-income ratio up to 50%, and VA lenders sometimes go slightly higher.
On the downside, FHA loans require mortgage insurance for the life of the loan. VA loans do not require mortgage insurance, but they do require a one-time funding fee that can be rolled into the loan balance.
Down Payment Assistance and Government Financing
Another way to address affordability concerns is with down payment assistance. While it’s not a requirement to use a government loan program – and many down payment assistance programs work equally with conventional financing and government loans – they are often work hand-in-hand.
Despite concerns about government downsizing and the elimination of many programs, research by the staff atDownPaymentResource.com for theirQ1 2025 Homeownership Program Index (HPI) found that 43 new homeownership assistance programs were added during the first quarter of this year, bringing the total number of programs in their national database to 2,509 — a new record.
The data also shows a growing number of providers and more flexibility in how funds can be used — not only for down payments but for other homebuying costs such as closing costs or even buyer’s agent fees.
Homeownership assistance is available to purchase manufactured and multi-family homes, opening new paths to affordability and steady income, according to Down Payment Resource founder and CEO Rob Chrane.
On average, the programs in their database offer a benefit of $18,000 and can lower a buyer’s loan-to-value by 6%. Loan-to-value refers to the amount of the loan compared to the purchase price or appraised value of a property. For example, conventional loan borrowers who make a down payment of 5% have a loan-to-value of 95%.
It's fairly common for renters to believe they cannot afford to become homeowners, but a free appointment with a lender or a housing counselor can open multiple possibilities and a potential path to homeownership.
Want to Buy? A Government Loan May Help
As the number of available homes increases, more borrowers are turning to government-backed mortgages for their financing.
While economic uncertainty has held back many would-be homebuyers this spring, others who feel more confident about their personal finances are looking at the larger number of homes for sale and preparing to make an offer.
Applications for government-backed loans, including FHA and VA mortgages, jumped 40% year-over-year during the first week of May 2025, according to the Mortgage Bankers Association. Overall, there was an 18% increase in applications for purchase loans compared to that same week in May 2024. In May 2025, approximately 17% of all mortgage applications were for FHA loans, and 13% were for VA loans.
One reason for the increase in purchase loan applications: More homes are available for sale, giving buyers more hope that they may be able to find a home to buy.
According to the National Association of Realtors, at the end of March there were 1.33 million existing homes available, up 8.1% from February and 19.8% from one year ago. That represents a 4.0-month supply of homes if the current sales pace continues, which is higher than the 3.2 months of supply available in March 2024 but still well below what’s considered a balanced market of about six months’ supply of homes.
Why Government-Backed Mortgages Attract Buyers
Even as the housing market softens with fewer sales and more sellers offer buyers help such as closing cost assistance, a mortgage rate buydown or money toward repairs, home prices continue to rise. The National Association of Realtors found that prices rose in 83% of metro areas during the first quarter of 2025.
However, even as existing home prices have risen, the median list price for a newly built home in the first quarter of 2025 declined slightly (0.3%) year over year to $448,393, according to research by Realtor.com, primarily because builders are constructing smaller homes.
In addition, builders often offer a mortgage rate buydown as part of their incentives for buyers, which makes a new home a potentially more affordable option. In 2023 and 2024, new-home buyers paid about half of a percent lower mortgage rates than existing-home buyers, according to the report.
Still, affordability issues continue to plague buyers, particularly first-time buyers. Government-backed loans can be a solution for financing challenges.
FHA loans offer greater flexibility for borrowers with lower credit scores to qualify and to pay lower mortgage rates. Unlike conventional mortgage loans, FHA loans (insured by the Federal Housing Administration) charge the same rate to all borrowers who qualify rather than basing the rate on their credit score.
Conventional lenders offer mortgages with rates on a sliding scale that vary according to numerous factors including your credit score. The chart below shows the difference in mortgage rate, monthly payment and interest paid over the life of the loan for a 30-year fixed-rate loan for $400,000 depending on the borrower’s credit score.
Source: MyFICO.com as of May 15, 2015
The FHA rate for a 30-year fixed-rate loan was 7.10% on that same date, which means that even borrowers with a credit score of 600 or less would pay the same rate as someone with a 760 or higher credit score.
Generally, FHA and VA mortgage rates are slightly lower than the interest rates on conventional mortgages. The VA loan program (guaranteed by the Veterans Affairs agency and available to current and former members of the military) doesn’t require lenders to adjust rates by credit score, although some VA lenders may do so when assessing borrower risk.
Other features of VA and FHA loans that make them attractive include:
On the downside, FHA loans require mortgage insurance for the life of the loan. VA loans do not require mortgage insurance, but they do require a one-time funding fee that can be rolled into the loan balance.
Down Payment Assistance and Government Financing
Another way to address affordability concerns is with down payment assistance. While it’s not a requirement to use a government loan program – and many down payment assistance programs work equally with conventional financing and government loans – they are often work hand-in-hand.
Despite concerns about government downsizing and the elimination of many programs, research by the staff at DownPaymentResource.com for their Q1 2025 Homeownership Program Index (HPI) found that 43 new homeownership assistance programs were added during the first quarter of this year, bringing the total number of programs in their national database to 2,509 — a new record.
The data also shows a growing number of providers and more flexibility in how funds can be used — not only for down payments but for other homebuying costs such as closing costs or even buyer’s agent fees.
Homeownership assistance is available to purchase manufactured and multi-family homes, opening new paths to affordability and steady income, according to Down Payment Resource founder and CEO Rob Chrane.
On average, the programs in their database offer a benefit of $18,000 and can lower a buyer’s loan-to-value by 6%. Loan-to-value refers to the amount of the loan compared to the purchase price or appraised value of a property. For example, conventional loan borrowers who make a down payment of 5% have a loan-to-value of 95%.
It's fairly common for renters to believe they cannot afford to become homeowners, but a free appointment with a lender or a housing counselor can open multiple possibilities and a potential path to homeownership.
Publisher’s Note: This content is made possible by our Today’s Homeowner Campaign Sponsors: Whirlpool Corporation. Whirlpool Corporation takes sustainability seriously, in both their products and their operations. Learn more about building and buying homes that are more affordable and less resource intensive.
By Michele Lerner, Associate Editor
Michele Lerner is an award-winning freelance writer, editor, and author who writes about real estate, personal finance, and business.Also Read