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).  FHA does not loan money to borrowers, rather, it provides lenders protection with a mortgage insurance premium (MIP) that protects the lender in case the borrower defaults on his or her loan.  Available to all buyers, FHA loans 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 comparable to conventional rates, while down payment requirements are lower than those 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 purchase price) and/or specific parts of the closing costs can be financed as part of the loan.
• Lower monthly mortgage insurance premiums (MIP) than conventional loan MI and, under certain conditions, automatic cancellation of the premium.
• More flexible underwriting criteria than conventional loans
• 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).
• Right to prepay loan without penalties
• Loans are assumable to qualified buyers, subject to qualification, when you sell your home.

Click here to learn more about FHA loans.

VA LOANS
VA guaranteed loans are made by lenders and guaranteed by the U.S. Department of Veteran Affairs (VA) to eligible veterans.  The guaranty means the lender is protected against loss up to a specific dollar amount if the borrower fails to repay the loan.  In most cases, no down payment is required on a VA guaranteed loan and the borrower usually receives an interest rate comparable to conventional loans.

Other benefits of a VA loan include: 

• Closing costs are comparable and sometimes lower - than other financing types - and can either by paid by the seller (up to 4% of the purchase price) and/or specific parts can be added to the loan.
• No private mortgage insurance requirement, meaning more of the payment can go toward the mortgage, itself and that equals the ability to purchase more house. 
• Right to prepay loan without penalty.
• The mortgage can be taken over (or assumed) by the buyer, if qualified, when you sell your home.
• 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 an Upfront Funding Fee to issue the guarantee to the lender for the mortgage.  The amount of the fee varies, depending upon how may times the VA guarantee has been used by the veteran.  A veteran with a rated disability from the VA can request to have the fee waived.  The fee may be paid 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, weather-stripping/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 obtained by the lender for the buyer to qualify for the loan.

Learn more about VA loan programs by clicking here.

USDA LOANS

While not a well known nor widely used program in this area, the Rural Development (RD) Guaranteed Rural Housing (GRH) program is an affordable housing program from the US Department of Agriculature (USDA).  GRH has many of the same benefits provided in the VA loan programs, including no down payment requirement, an Upfront Funding Fee that can be either be paid by the buyer or seller at settlement or included in the loan amount, no Mortgage Insurance and the ability to allow a qualified buyer to assume the loan when you sell your home.  Like both VA and FHA, there is no prepayment penalty for these loans. 

A difference between this program and VA or FHA programs is that GRH has both geographic and income limitations.

You can learn more about the GRH program by clicking here.