Federal Housing Administration (FHA)
The Federal Housing Administration, "FHA", provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA will insure mortgages on single family, multifamily and manufactured homes. FHA was created by Congress in 1934 and became part of the Department of Housing and Urban Development (HUD) in 1965. FHA was created to help the housing industry at a time when millions had lost jobs, terms for mortgages were difficult to meet and America was primarily a nation of renters (only four in 10 households owned homes). It is the largest insurer of mortgages in the world; insuring over 34 million properties since its inception.
In the mortgage industry we recently have seen a large increase in FHA loans. This was due to the loss of "subprime" and "alt-A" loans. FHA-insured loans require small down payments and there is more flexibility than conventional loans when it comes to qualifying. FHA is not a credit score driven product unlike many conventional loans. With that said, we have seen the mortgage bank investors tightening the credit score requirements recently. FHA does have a maximum loan amount limit. This varies depending on what county and state you are purchasing in. To find the exact amount for your area and more information you can go to www.hud.gov
Here are the highlights of FHA loans:
- Low down payment requirements (Usually 2.25%-3%)
- Down payment can be gifted from a relative or approved non-profit organization
- Non-occupying co-borrowers are allowed
- Full documentation only. No stated income or assets
- Reserves not required but may be needed for approval
- MIP (Mortgage Insurance Premium) is 1.5% of total loan amount and generally financed into loan
- Low monthly mortgage insurance payment
- Alternative credit is allowed if borrower does not have any credit scores or established credit
- Primary residences only
- Seller/lender can pay up to 6% of the sales price toward closing cost
Another nice feature for a FHA loan is the streamlined refinance. There are other refinance options with FHA but I want to touch on this one because of the benefits in today's market. FHA allows you to refinance from a FHA loan at anytime as long as certain criteria is met. Your interest rate must drop and the lender can't increase your loan amount higher than what the original loan amount was. If you can meet this criteria you can do this refinance without an appraisal. This is big right now because we have been seeing values of homes dropping for the last year in most areas. The lender will not need to order an appraisal on your property. There is very little, if any, documentation that will be required from you to complete this loan. There is no credit qualifying. The lender will only need to verify your mortgage payment history. If you are in a FHA loan you will want to contact a FHA approved lender to see if this is an option for you.
Veteran's Administration (VA)
VA home loans are to help veterans finance the purchase of homes with favorable loan terms. There are members of the Selected Reserve, active duty personnel and certain categories of spouses that may also be eligible for VA loan financing. You will need to provide a Certificate of Eligibility from VA to prove to the lender that you are eligible for a VA loan. VA loans offer many benefits for the veteran;
- Ensure that veterans are given equal opportunity to buy homes with VA assistance
- No downpayment (unless required by lender or if the purchase price is more than the reasonable value of the property)
- Limitations on closing cost
- Allows seller/lender concessions to help pay closing cost
- Single family residences and manufactured homes can be financed
There are some other benefits that you may want to check on. A great resource for any questions regarding eligibility and all benefits can be found at www.va.gov
VA loans are unique and have features that only apply to them. VA-guaranteed loans are made by lenders (banks, savings and loans or other mortgage companies). If the loan is approved, VA guarantees the loan when it is closed. The guaranty means the lender is protected against loss if you fail to repay the loan. The guaranty amount does vary depending on the sales price of the home but generally goes up to a max of $36,000. VA loans are for primary residence only and require full documentation for qualifying. VA loans also do not have any monthly mortgage insurance but they do have a funding fee. The funding fee is a percentage of your loan amount that is generally financed into your loan. The funding fee does vary depending on which type of service you were classified as (regular military or reserves/ National Guard). Money for down payment can also lower the amount of the funding fee. Veterans that are disabled may also be exempt from paying the funding fee.
Myths
There are some myths about VA loans that I want to go over. VA loans do limit the closing cost but there will be closing cost on the loan. These can be paid by seller but you do want to consult a lender before writing contract so you can negotiate this in. VA does not set the interest rate. Interest rates are set by the lender and can vary from lender to lender. VA only guarantees the loan not the condition of the property. All lenders do have to use an approved VA appraiser for these loans but the appraisal is not intended to be an "inspection". Most sellers will permit you, at your own expense, to arrange for an inspection by a qualified residential inspection service and negotiate with you concerning repairs to be completed.