FHA and VA Home Loan

There are several special mortgage programs offered by various organizations and communities but the most common and widely used mortgage options are provided by our government. Although there are many different types of government loans, the two most popular are FHA and VA loans. These loan programs are intended to help home buyers purchase a home and ultimately ensure that they can pay for the costs.

While both FHA and VA home loans are beneficial for consumers who qualify for them, we can't help but analyze their differences.

FHA Home Loan

FHA loans are offered by the Federal Housing Administration and like many other mortgage options it is designed to help future homeowners purchase a home. Applicants are required to pay a small down payment, often lower than other mortgage programs. For this reason, the FHA program makes it easier for potential home owners to qualify and begin the process of purchasing a home and applying for a mortgage.

What makes the FHA program unique is that the loan is insured against default by Federal Housing Administration. That means the organization offers a guarantee that the lender will not write off your mortgage if the borrower defaults in the future. Instead, the organization will pay on your behalf. This obligation is funded through the fee that the FHA charges from the borrowers. The FHA fee is paid as an Up-front Mortgage Insurance and a Monthly Mortgage Insurance. This guarantee makes it easier for lenders to consider giving you a pretty big amount for loans since there is assurance that they will be paid back.

While FHA is a helpful loan option, it does not work for everybody. Borrows with different circumstances may think that it is very limiting or restricting. The FHA mortgage programs only allow for a small to medium mortgage loans that are based on current rates in your area where you want to buy. Like most mortgage options, anybody can apply for this type of mortgage as long as you have a good debt to income ratio and reasonable credit score to be accepted.

Common requirements for most FHA mortgage options:

  • You have to prove that you are employed for at least 2 years
  • Your credit score in the last 2 years should be at around 640 or higher. In certain cases, the FHA loan can be extended to those who do not have any credit score at all.
  • If you were recently bankrupted, the FHA requires that you apply after 2 years and maintain perfect credit after filing. In terms of foreclosures, it should be around 3 years.

FHA loans are ideal for borrows that want to buy a home at a very low down payment of 3.5%. This is unheard for most conventional loans, making the FHA mortgage program very attractive for many. Also, this loan allows borrowers to use gifts for the initial costs. Subprime borrowers can also enjoy no penalties on prepayment. FHA loans are assumable, meaning the loan can be taken from you by another person or entity.

While the FHA loan has many benefits, it is not intended to fit everyone’s needs or requirements. Depending on your circumstances this option might not get a large home loan since they may not provide enough funding or compared to other private mortgage products and insurances, the costs that you pay may be too high. However, for many other home buyers this FHA program is very useful and likely their best choice to obtain a home loan.

VA Home Loan

VA home loans have been in existence for decades since it was originally established in 1944. The loan was enacted through the GI Bill of Rights. This bill was signed by then-president Franklin Roosevelt and offers war veterans a guaranteed loan with no down payment. This was designed specifically for military servicemen and veterans so that they can get housing ownership. This became a very promising benefit that enables veterans and military families to get a home. At the moment, there are more than 2 million service personnel and veterans that are eligible to get this loan. It is very attractive and has numerous advantages but is limited only for those who are veterans and military personnel.

For someone to be eligible for the loan, they need to serve the military at least 90 days during war time and 181 days (continuous) during times of peace. The veteran should have a 2-year requirement depending on the year in which he started service while reservists and national guards have a 6 year requirement with numerous other eligibility qualifications to get a loan. If the person indeed gets a loan, he or she can get a 25% loan guarantee of $104,250. That means the maximum loan that the veteran can apply for is around $400,000. The funding fee and the purchase price for the property can be borrowed. A veteran should qualify since not all will have automatic eligibility for the program.

The VA loans are offered by private lending companies such as mortgage companies and banks. These banks offer the loan to eligible veterans who want to purchase a home for personal use only. It is highly unlikely that the VA loans can be used to buy investment property, like rental homes. The guarantee offered by this loan means that the lender is safe if the homeowner fails to pay the loan or default. This guarantee actually replaces the security offered by the down payment so that you can get better financing options.

Aside from the no down payment options that are available for qualified applicants, there is another great benefit about the VA loans: you do not have to pay for private mortgage insurance. We all know that homeowners hate additional costs and the PMI certainly is a big pain for most homeowners. Though it is advantageous, it is not really the most appealing option. The VA loans do not require and actually prohibits the borrower from ever paying one. Since the loan is guaranteed, there is no need for borrowers to get a second layer of protection for a price. The guarantee is sufficient enough for veterans to focus on their mortgage repayments and not worry about other charges that regular homeowners have to undergo.

The common market for VA loans is usually those in the middle class. More than 50% of applicants who get this loan are first time buyers. The annual income for these individuals range from $50,000 and has cash of about $5000. Most of the VA loan borrowers tend to forgo paying a down payment. Most of the borrowers are middle aged from late 30s onwards, with majority of borrowers being men as opposed to women. The advantage of this loan is that it is available for former and active members of the military who have met the requirements we described above. A widow can also apply for this loan as long as the deceased spouse died on a service related cause. Those people whose spouses have gone MIA or POW can qualify to get a loan.

The best thing about the VA loans is that they are so easy to get. If you qualify, receiving the loan will not be as tough as one would otherwise think. The certificate that is required is used to verify service and/or discharge. This is important so you know how much the vet can get from this program. The automated system of getting a loan especially for first time home buyers can easily get a quote on how much they can receive. The actual loan processing on the other hand will take around 2 weeks to 6 weeks to process.

FHA and VA Home Loans Conclusion

Interested home buyers who want to take advantage of FHA and VA loans can gain advantage from both loans. While there are many other mortgage options, not all of them are dedicated to minimizing the initial cost for securing a home. These loans are highly suggested to those who want to benefit from low down payment or no down payment with guarantee and backing from the government. The fiscal crisis is far from over but that does not mean that you cannot qualify for a home loan. Everybody deserves to enjoy a comfortable home that they can pay conveniently. It is highly recommended to consider getting these loans if you want to secure a home no matter how big or small your initial capital is.

How to get an FHA or VA Home Loan:

If you are looking to apply for an FHA or VA home loan, NationsChoice Mortgage can help you begin the process of applying for a loan. NationsChoice Mortgage has a well-trained team of mortgage specialists that are always available to help you make the best decision with your mortgage-related needs. We understand that choosing the right type of mortgage for your needs is a big decision and we are always here to help you make an informed choice.

To begin applying for a fixed rate refinance mortgage all you need to do is search rates and you will receive a personalized interest rate quote. You can then choose the type of loan and interest rate which fits your needs best. Your mortgage application can also be completed online using our advanced online mortgage application. If you have questions anytime during the online application process, feel free to contact us and we will provide you with all the information you need.

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