In this article, we will discuss the main characteristics of the FHA (Federal Housing Administration), VA (Veterans Affairs), and USDA (United States Department of Agriculture) Mortgage Loans program. These programs are even, Insured or Guaranteed by the government. We also discuss the myths and benefits of each one and why you should know the difference between them.
Types of Mortgages Loans:
- Conventional (Fannie Mae & Freddie Mac)
- FHA (Government Insures Loan)
- VA (Government Guarantees Loans)
- USDA (Government Loans for Rural Areas)
Federal Housing Administration-FHA
Government Insures Loans (It does NOT make the loan). This loans come from lenders and requires Up-Front mortgage insurance premium (UFMIP) of 1.75% of the total loan amount. This means that 1.75% will be added to the loan amount. Also requires an annual premium fee paid monthly of .85% of the unpaid balance. This program payment must have PITI (Principal, Interest, Taxes, and Insurance) Mortgage Insurance and HOA (Home Owners Association). Is not a maximum purchase price but the maximum loan amount must not exceed $314,827. This program could be used to purchase 1-4 units of residential dwellings.
Advantages of FHA: Lower down payment (approximate 3.5% of purchase price) Higher allowable DTI% (Debt to Income Ratio) and lower FICO Score.
Disadvantages of FHA: Mortgage insurance is for the life of the loan and decreases the amount of home loan. Property requirements may discourage sellers due to Appraisal Contingencies.
United States Department of Agriculture-USDA
The same description as FHA but the property must be located in Rural Areas.
Department of Veterans Affairs-VA
VA Guarantees Loans (It does NOT make the loan). This loans also come from lenders and does NOT require Up-Front mortgage insurance premium (UFMIP) like FHA, and as well does NOT require mortgage insurance. The payments must include PITI and HOA if applicable. Is no maximum on the purchase price but the maximum loan amount is $484,350. This program likewise FHA could be used to purchase 1-4 units of residential dwellings.
Advantages of VA: No down payment on loans up to the current maximum amount. Lower interest rate due to government guarantees. No prepayment penalty on loan payoff. May be used more than once if an old VA loan is paid off and Veterans Affairs released. May have two VA loans at once.
Disadvantages of VA: Only Veterans and spouses qualify. Veterans may be charged fundings fees. The fees for first time user are approx. 2.15% and 3.3% for subsequent use. Disabled vets are exempt.
Top 10 VA Home Loans Myths Busted
Myth #1. You Need Perfect Credit to be Approved.
False. While the VA encourages approved lenders to provide VA loans to all qualified applicant, it does not describe a minimum credit score. Each lender has its credit requirements, which they use to verify that borrowers meet the ability to repay the loan. Lenders are expected to use good judgment and flexibility when applying the VA's underwriting recommendations for credit, debt, and income. Typically a FICO Score in the 600's or better is needed to apply for a VA loan.
Myth #2. Only Combat Veterans are Eligible.
False. Veterans, active-duty service members, reservist, National Guard members, surviving spouses, and other individuals can earn eligibility for home loans benefits. You may be eligible if you are a(n): Military Veteran, Active Duty Servicemember, Reservist or National Guard Member, Surviving Spouse and Academy Cadet of Midshipman.
Myth#3. You Can Use the VA Home Loans Benefits Once.
False. If you earn a VA loan benefit it is yours for life, and in some cases, can be used multiple times at once. Many Veterans use it again and again for their home financing needs. You can use it to buy that starter home and then use it aging to upgrade to a larger home for your growing family. And you can use it aging to refinance your property for a lower interest rate or get cash out of your home's equity. Depending on the value of each property you buy, you may or may not need to restore entitlement to reuse your benefit. As long as you have enough entitlement to back your loan, a VA loan can be a great mortgage choice for all stages of life.
Myth#4. The VA Appraisal Takes Too Long.
False. VA appraisals shouldn't take any longer than appraisals for conventional loans. Once you have signed a purchase contract, your lender can order the VA appraisal. once ordered, the VA will dispatch it to the next available VA-Approved Appraiser.
Myth#5. VA Loans Have Unexpected Out-Of-Pocket Cost
False. VA loans are known for their benefits, including no private mortgage insurance (PMI) and, in most cases, zero down payers. Thin it's too good to true? According to VA statistics, about 90% of all VA purchase has been made with no down payment since the programs' inception.
Myth#6. VA Loans Have Too Much Government "Red Tape"
False. Most VA lenders have authority form the VA to underwrite loans automatically, without submitting them to the government for approval. A good lender will establish a trusted relationship with you. And you should feel comfortable working with them on all aspects of your loan journey. Unless there are some extenuating circumstances, you probably won't work directly with the government when you apply for your VA loan. You do have the option of using the VA website to obtain you COE (Certificate of Eligibility), but even for this step, you can use your lender as a liaison.
Myth#7. You're Limited As Far AS What You Can Do With Your VA Home Loan Benefits
True. But look the different way to use your VA Home Loan benefits; Buy a Single Family Home, buy a condominium unit in a VA-Approved Complex, buy a Multi-Family property (up to 4 units per VA-Eligible Borrower, buy a Manufactured home and/or Lot (Certains Lenders). Streamline refinance your VA loan for a lower rate of payment, and Cash-Out of regular refinance you VA or Non-VA mortgage.
Myth#8. VA Loans Have Higher Interest Rate
False. Va loans interest rates are commonly as low or lower than competitive rates on conventional loans. Based on data from Ellie Mae, the average interest rate on 30-year conventional loans was 4.05% from January through September 2019. The average VA rate for that same period was more than One-Third (1/3) point lower at 3.625%.
Myth#9. Most Veterans Don't Qualify For VA Home Loan
False. Most Veterans are eligible for VA loans. ore VA loans are being approved than ever. In 2018, the VA backed a record 905,474 mortgages totaling nearly $207 Billion. By Ellie Mae stats, VA and Conventional loans both had a closing rate of 76.1% from January through September 2019.
Myth#10. VA Occupancy Rule Is Too Hard For Active Duty Serving Overseas
False. VA requires owner occupancy within a reasonable time after closing - usually 60 days. But there is more than one way to skin a cat for active-duty military personnel. Those serving away on active duty can receive an extension of up to 12 months if needed. if the active duty member still can't satisfy the rule, a spouse or dependent child can. If you are a Military Servicemember or someone you know and need assistant on any Real Estate Service please contact us.