FHA Loans are insured by the Federal Housing Administration. Since FHA Loans are insured by the government, a down payment of only 3.5% is required. FHA loans are a popular loan option for first time home buyers who have not have the savings for a 20% down payment.
FHA loans require a down payment of at least 3.5% to qualify. While FHA does not have private mortgage insurance, government mortgage is required on all loans. Most lenders require that the borrower have a credit score of at least 620 and the amount of their mortgage payment not exceed 31% of their gross monthly income. The loan amount must be less than the FHA County Loan Limit. FHA loans can only be used to purchase a primary residence.
FHA loans are a great option for first time home buyer or those how have had credit challenges in the past. Typically lower or middle income borrowers who have not saved the 20% down payment required by a conventional loan benefit from FHA Loan’s low down payment of 3.5% to qualify.
FHA Loans have the same closing cost as all other loan types. FHA Loans have the additional cost of Up Front Mortgage Insurance Premiums (UFMIP) and monthly mortgage insurance. The Up Front Mortgage Insurance Premium can be rolled into the final loan if needed. A FHA Loan allows the sellers to contribute up to 6% of the purchase price towards the borrowers closing cost.
On the other hand, the VA Home Loan is the preferred home loan choice for veterans and active duty military families. The VA Home Loan Program offers less restrictive guidelines and more underwriting flexibility than other types of loan products making it easier to qualify.
No Down Payment
One of the biggest obstacles for homebuyers is saving enough money for a down payment. The burden can be especially difficult for active duty service members who are moving from base to base. Since there is no down payment required for a VA Home Loan, many veterans can purchase a home with little to no money out of pocket.
No Mortgage Insurance
Since the VA guarantees the lender the top 25 percent of the loan, no mortgage insurance is required. Most conventional loans require a borrower to put down at least 20 percent of the purchase price or pay mortgage insurance. Mortgage insurance can be costly and does not ever go towards reducing your principal balance. The VA home loan allows borrowers to have a lower effective interest rate and build equity more quickly than other loans with mortgage insurance.
No Prepayment Penalty
There are never any prepayment penalties for a VA Home Loan. This means that you are free to refinance and take advantage of a lower rate or get cash out without having to pay a penalty to do so. If you are active duty military and frequently move, not having to pay a penalty makes your home that much easier to sell.
Competitive Interests Rates
Because the Department of Veteran Affairs guarantees each loan, interest rates are typically 0.25 to 1 percent lower than those of conventional loans. Additionally, without mortgage insurance, the effective interest rate savings is tremendous.
Seller Paid Closing Cost
If negotiated, the VA allows the seller of a property to pay up to four percent of the purchase price towards the veterans closing costs and prepaid items. Negotiating the terms of the contract to maximize your VA home loan benefit should always be done by a qualified real estate professional, such as Security American Realty. If done properly, most veterans can close on their home with little or no money out of pocket.
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