The Federal Housing Administration (FHA), a division of the U.S. Department of Housing and Urban Development (HUD), insures its approved mortgage lenders against losses from mortgage loans made under HUD guidelines. FHA mortgage loans are available to anyone who qualifies and can be financed up to 96.5 percent of a home's appraised value. FHA also allows all or part of the closing costs to be rolled into the mortgage. The drawback to FHA loans is the requirement for borrowers to pay an up-front mortgage insurance premium and to pay annual mortgage insurance premiums that are pro-rated monthly and added to the mortgage payment.
State housing finance agencies provide low-cost mortgage financing with as little as 3 percent down. These first-time buyer programs generally work with "partner" mortgage lenders that provide required educational sessions for first-time buyers. Additionally, buyers may be required to meet income requirements specific to the state or county where the home being purchased is located. Housing finance agencies also offer down-payment assistance in the form of "silent" second mortgages that cover a portion of the down payment and closing costs for first-time buyers. These second mortgages are called silent because they don't have to be repaid until the home is sold.
Fannie Mae and Freddie Mac own a majority of mortgage loans in the U.S. When these loans are foreclosed or otherwise deeded back to the mortgage owner, they have to resell the home. Fannie Mae and Freddie Mac function as both sellers and mortgage lenders by providing buyers of these homes financing at up to 97 percent of the home's appraised value without requiring mortgage insurance. First-time buyers are allowed to use down-payment assistance from housing finance agencies but are required to put a minimum of $500 cash into purchasing a home from either of the government-sponsored agencies.
Before looking for a home and applying for a mortgage loan, be certain that you're prepared for the extra costs of owning a home. Attending an educational session for first-time buyers is useful for budgeting for expenses associated with home ownership. Mortgage loans requiring small down payments expose homebuyers to additional risk. If home values fall, you could owe more on your home than it's worth. Also, programs designed for first-time buyers typically have strict owner-occupancy requirements. HUD offers housing counseling to borrowers of FHA-insured mortgage loans and the general public.
source : http://homeguides.sfgate.com/government-loans-firsttime-homebuyers-39341.html