Government and VA Loans
An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). They are popular especially among first time home buyers because they allow down payments of 3.5% for credit scores of 580+. However, borrowers must pay mortgage insurance premiums, which protects the lender if a borrower defaults.
Typically an FHA loan is one of the easiest types of mortgage loans to qualify for because it requires a low down payment and you can have less-than-perfect credit. For FHA loans, down payment of 3.5 percent is required for maximum financing. The borrower’s credit score can be between 500 – 579 if a 10% down payment is made. It’s important to remember though, that the lower the credit score, the higher the interest borrowers will receive.
In addition to common loan structures such as fixed rate and adjustable rate, FHA has other loan programs for low to no down payments, community lending and affordable housing initiatives. Consult your mortgage professional and consider all your options.
How To Qualify for a Government Loan/Mortgage
The FHA (Federal Housing Administration) is an administration that has been helping people since 1934 to obtain the loans they need in order to buy a house. It is the largest insurer of residential mortgages in the world and has been insuring millions of homes since its inception. This is an especially popular choice for first time home buyers as the requirements are much more achievable for a first time buyer.
Qualifying for a government loan/mortgage may seem like it is a difficult task to achieve, but it is easier than one may think. In order to obtain an FHA loan, you must have the following requirements.
- If you have a FICO (Credit Score) score of at least 580 which can qualify yourself for a 3.5% down payment. This is a great way to start off your home buying experience especially if you are a first time home buyer with lower funds than the majority of more experienced home buyers.
- If you have a FICO (Credit Score) of 500-579 you will have to put down 10%
- MIP (Mortgage Insurance Payment) is required. This is essentially what you would pay if you were to make a down payment of anything less than 20%. When it comes to the FHA, this must be paid by the borrower.
- You must have a DTI (Debt to Income) ratio of 43% or less. This is great if you have more of a build up of debt and need a better rate for you DTI. The majority of other loan companies will require a DTI of 36% or less.
- The home that is being purchased must be the primary home the borrowing individual.
- The borrower must have a consistent and steady income as well as have proof of employment.
Issues That Can Come With FHA Loans
- No credit history can be an issue when applying for an FHA loan. If you were to not have any credit history, the lender will have to use other means in order to develop a credit history, including Non-Traditional merged credit reports.
- Bankruptcy does not disqualify you as a borrower. The only caveat is that 2 years must have passed since the bankruptcy in order for you to have rebuilt a new FICO/credit score.
- Late Payments are not a very good way to go about managing debt. It is a good rule of thumb to have at least 12 months worth of funds to make payments with before you turn in an FHA Loan application.
- Foreclosure isn’t necessarily the be-all-end-all when it comes to getting an FHA Loan – it is all dependant on the circumstances of your foreclosure.
- Collections, Judgements and Federal Debt are generally needed to be resolved or paid off before the time of closing. If they are not, there is a chance that you will not be able to close on your home.
What Are The Benefits Of Having An FHA Loan?
- It is very easy to qualify for an FHA Loan. The requirements are lower than any other form of home loan/mortgage. If you have a lower than average FICO (credit score) score you will still be able to qualify for an FHA Loan.
- FHA Loans have very competitive interest rates which is great for homeowners and their monthly payments.
- Bankruptcy/ Foreclosure are not as big of a problem for obtaining an FHA loan. Just because you’ve had one in the last few years doesn’t mean you can’t qualify.
- If you have credit history troubles, not to fear, there is still hope and lenders will be able to figure out a solution for you so you will be able to get that home you want even if your credit history is spotty or even non-existent.
- You only have to put down a minimum of 3.5%.
- Closing costs and fees can be included in the loan which is excellent for first time buyers.
How Does An FHA Loan Compare To Other Types of Loans?
- An FHA Loan is can be obtained with a down payment of as little as 3.5% whereas, a conventional loan will more than likely require a downpayment of 20%. These funds come exclusively from FHA approved sources. These include money from your savings, money saved in the home such as a coin jar, investments that you have cashed in, etc.
- The majority of loan companies require the borrower to carry a private mortgage insurance if the borrowers don’t put down the minimum payment of 20%. FHA loans/mortgages and different in the sense that they require the minimum of an Up front MIP (Mortgage Insurance Premium).
What Do You Need at the Time of Closing?
- You must have a current and valid for of ID.
- The title and insurance must be paid in order to guarantee that the property is free of previous clients or liens.
- Homeowner’s insurance must be paid in order to close on the home. This insures the home in case of any damages that occur.
- You must make sure that you bring the necessary closing funds as either a cashier’s check or a form of electronic payment.
Who Can You Contact For More Information?
There are many resources out there for you to get the information that you are looking for. You can utilize the internet and check out our website. We’ve developed an excellent website that will be able to answer any questions you may have on the subject of buying a home, figuring out what kind of loan/mortgage you want whether it be fixed-rate mortgage or an adjustable-rate mortgage (we even have information on reverse mortgages) – the answers to your questions are endless. We even have our very own mortgage calculator that can help you figure out how much a potential mortgage will cost for you in the future.
The VA loan is a $0 down payment mortgage option available to Veterans, Service Members and select military spouses. VA loans are issued by private lenders and guaranteed by the U.S. Department of Veterans Affairs (VA).
The VA home loan was created in 1944 by the United States government to help returning service members purchase homes without needing a down payment or excellent credit. This historic benefit program has guaranteed more than 22 million VA loans to help veterans, active duty military members and their families purchase homes or refinance their mortgages.
Consult your mortgage professional to discuss qualification requirements and consider all your options.