Main Loan Types
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Government loans are guaranteed loans by one of two federal agencies - Federal Housing Administration (FHA ) Loans and Veterans Administration (VA) Loans. These two types of loans allow lenders to lend money with knowing the Government entities will guarantee repayment to the lender if the loan goes into default and subsequently foreclosure. The Lender is loaning the money, not the Government.
The advantages of financing using FHA Loans are that they are easier to qualify for than Conventional Conforming Loans. FHA Loans allow a borrower to finance more of the loan amount than non-government loans. With a Conforming Loan a borrower may only be able to finance 95% of the loan amount, a FHA Loan allows a borrower to finance 96.5% of the loan amount. FHA Loans are recommended for those borrowers who are first-time buyers, have low down payment, have a short credit history, or are having trouble qualifying for a Conforming Loan. FHA not only requires upfront Mortgage Insurance, which can be financed back into the loan, but it also requires Monthly Mortgage Insurance to be added to the Monthly Payment. FHA Loans require a minimum credit score of 640.
The two main advantages of financing using VA loans are that the VA allows borrowers to finance 100% of the loan amount, and that, the VA only requires proof of veteran status to qualify for the loan. VA does require the Veteran to pay a VA Funding Fee. This fee is based on whether this is the first time using the VA loan and amount of down payment if any. VA does allow the Veteran to finance it back into the loan. VA Loans require a minimum credit score of 620.
FHA and VA Loans are offered as 30, 25, 20 and 15 fixed rate mortgages. The primary advantages of FHA Loans are their low down payment requirement and their less stringent qualification requirements. Although FHA Loans are not restricted to first-time homebuyers they are well suited for the first-time buyer.
If you have VA Entitlement, it is very difficult to beat a VA Loan. We are VA Specialists and will be able to provide the advantages of using your VA benefit.