When getting a mortgage it is important to know all your options. And then decide which mortgage is best for you. I can help you with this decision, but I also want to give you a short explanation of each of the major 3 mortgage programs: FHA, VA and Conventional. Here they are:
An FHA loan is insured by the Federal Housing Administration, a federal agency within the U.S. Department of Housing and Urban Development (HUD). The FHA does not loan money to borrowers, rather, it provides lenders protection through mortgage insurance (MIP) in case the borrower defaults on his or her loan obligations. Available to all buyers, FHA loan programs are designed to help creditworthy low-income and moderate-income families who do not meet requirements for conventional loans.
FHA loan programs are particularly beneficial to those buyers with less available cash. The rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans.
Some of the other benefits of FHA financing:
- Only a 3.5% down payment is required.
- Closing costs can be paid by the seller. Up to 6% of the sales price
- Lower monthly mortgage insurance premiums and, under certain conditions, automatic cancellation of the premium.
- More flexible underwriting criteria than conventional loans, lower credit scors
- FHA limits the amount lenders can charge for some closing cost fees (e.g. the origination fee can be no more than 1% of mortgage).
- Loans are assumable to qualified buyers.
- 203k FHA loans allow you to buy a home and finance the repairs that are needed.
VA guaranteed loans are made by lenders and guaranteed by the U.S. Department of Veteran Affairs (VA) to eligible veterans for the purchase of a home. The guaranty means the lender is protected against loss if you fail to repay the loan. In most cases, no down payment is required on a VA guaranteed loan and the borrower usually receives a lower interest rate than is ordinarily available with other loans.
Other benefits of a VA loan include:
- 0% Down Payment
- The Buyer can not pay some fees that are normally charged, so the Seller actually pays these fees for you
- The seller can pay up to 4%(of the sales price) of your closing costs
- No monthly mortgage insurance. Giving you a lower Mortgage Payment
- Right to prepay loan without penalties
- The Mortgage can be taken over (or assumed) by the buyer when a home is sold.
- Counseling and assistance available to veteran borrowers having financial difficulty or facing default on their loan.
Although mortgage insurance is not required, the VA charges a funding fee to issue a guarantee to a lender against borrower default on a mortgage. The fee may be paid in cash by the buyer or seller, or it may be financed in the loan amount.
A Certificate of Eligibility from the VA must be presented to the lender to qualify for the loan.
Conventional Loans are considered the run of the mill loans. They have higher credit score requirements in most examples. But this is the type of loan you would choose if you were putting 20% down payment, etc. Here are some of the benefits of a Conventional Loans:
- You can waive your escrow account. Meaning you can pay your taxes and insurance on your own
- You do not have to pay an upfront mortgage insurance or funding fee like FHA and VA loans
- You can do a 2nd mtg for part of your down payment. If you do not have your 20% down payment, so to avoid mortgage insurance. And not have an escrow account
- Conventional Loans can also be used to purchase an Investment Property or Second home.
For More Information on 2nd Mtgs:
When getting a Mortgage You need to know your options. Call me today to see which mortgage is best for you.