All mortgages fall under one of two classifications; Conventional or Government. There are several distinctions within Conventional; Conforming, Non-Conforming, Jumbo, Sub-Prime, etc. But, with Government loans, there are only 2 distinctions FHA or VA. Both FHA and VA are funded by private lenders, not the government. But because some of the risk is shifted away from the lender because of government programs, they offer opportunities where conventional products might not
FHA is a loan that is insured by the Federal Housing Administration. Meaning, that the borrower will have mortgage insurance, however it is usually a lower rate than that of conventional mortgage insurance. Some features of an FHA loan would be:
- Low down payment requirements
- Lenient credit, debt, and income guidelines
- Down Payment and closing costs can be in the form of gift funds or can be rolled into the loan amount.
- Fixed and Adjustable rates are available
VA Loans offer many of the same benefits as FHA with a couple very significant differences. The biggest is that the VA guarantees the loan. This does not mean you are guaranteed a loan. This means that, if you meet the eligibility and qualification guidelines, the VA will guarantee the lender against a certain portion of loss in the event of foreclosure, etc. Why is that important? Because of that guarantee, the lender feels all warm and fuzzy and will extend some features like:
- No down payment required
- VA loans are assumable loans
- No Mortgage Insurance
- Lenient credit, debt, and income guidelines
- Fixed and Adjustable rates are available
Government loans aren't the answer for everyone, but they do offer significant advantages for home buyers that meet certain criteria. There are a lot of misconceptions from realtors and banks about the processing and underwriting for these loans, but any reputable mortgage broker can easily guide your loan through so you can maximize the benefits available to you.
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