Which type of loan is guaranteed by the government?

The type of loan that is guaranteed by the government is associated with the VA, or Veterans Affairs loan program. This loan is specifically designed to help veterans, active-duty service members, and certain members of the National Guard and Reserves obtain home financing. The VA provides a guarantee to lenders, meaning that if the borrower defaults, the government will reimburse the lender for a portion of the loan amount, thereby reducing the risk for lenders. This guarantee enables veterans to access favorable loan terms, such as no down payment and competitive interest rates.

In contrast, FHA loans are backed by the Federal Housing Administration, but they are not a guarantee; they involve mortgage insurance rather than a guarantee of the loan amount. Fannie Mae and Freddie Mac are government-sponsored enterprises that buy mortgages on the secondary market, which supports the mortgage market but does not directly guarantee loans in the same way the VA does for its borrowers. The distinction lies in the nature of the guarantee and the specific groups targeted by these programs.