Government loan programs
FHA loans
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.
FHA loan programs are available to all owner occupied borrowers, not just First Time Home Buyers (FTHB) and can be used to finance up to 4 unit owner occupied buildings. See link for maximum financing amounts in your area: https://entp.hud.gov/idapp/html/hicostlook.cfm.
FHA loan programs are particularly beneficial to those buyers who want to maximize their cash available for the down payment. The rates on FHA loans are generally market rates, while down payment requirements are lower than all conventional loans in today's market.
Some of the other benefits of FHA financing:
- Only a 3.5 percent down payment is required.
- More flexible underwriting criteria than conventional loans.
- Up to 4 units can be financed creating greater real estate wealth for owner occupied borrowers.
- Up to 6% Seller concessions allowed to pay for closing costs, UFMIP, discount points, and rate fee buydowns.
- UFMIP (UpFront Mortgage Insurance Premium) costs can be financed.
- Lower monthly mortgage insurance premiums compared to conventional financing and, under certain conditions, automatic cancelation of the premium.
- Loans are assumable to qualified buyers.
VA Loans
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:
- Negotiable interest rates.
- Closing costs are comparable and sometimes lower - than other financing types.
- No private mortgage insurance requirement.
- 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 VA loan can be used to buy a home, build a home and even improve a home with energy-saving features such as solar or heating/cooling systems, water heaters, insulation, weatherstripping/caulking, storm windows/doors or other energy efficient improvements approved by the lender and VA.
Veterans can apply for a VA loan with any mortgage lender that participates in the VA home loan program. A Certificate of Eligibility from the VA must be presented to the lender to qualify for the loan.
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