Most discounted mortgage rates are available because a specific government agency is guaranteeing your mortgage loan for the lender. When the government guarantees a loan, it means that the government will use public funds to pay off the loan in case the borrower defaults. These discount mortgage rates are usually only offered to people who meet certain criteria set by the specific government agency.
For example, the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD), approves certain lenders and insures the mortgage loans such lenders make. As a result, these FHA-approved lenders are more open to making loans to people with bad credit histories or require very low down payments because they know the government will pay off the loan if the borrower defaults. Indeed, an FHA -approved lender might even approve a third party, such as family member or charity, paying the low down payment for you. Borrowers who qualify for these loans will often get a discounted rate.
If you're a veteran, you might qualify for a discounted mortgage backed by the Veteran's Administration (VA). Again, the VA doesn't make the loan, but the VA guarantees payment of the loan made by the lender. The VA-backed loans may even require no down payment under some circumstances. Overall, the terms of the VA-backed loans for veterans are more generous and there are more relaxed borrower standards than a traditional mortgage loan.
Another way to find a discount mortgage is if you live in a rural area or small town. The Rural Housing Service (RHS) of the U.S. Department of Agriculture runs its own loan programs to encourage home ownership in rural areas. The RHS guarantees loans made by some lenders, and also makes government-funded loans directly itself. These loans are usually geared toward low-income families.