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FHA Loans and VA Loans

What is an FHA Loan?

Put simply, an FHA loan is insured by the Federal Housing Administration, a federal agency within the U.S. Department of Housing and Urban Development (HUD). The FHA does not loan money to borrowers; rather, it provides lenders protection through a mortgage insurance premium (MIP) in case the borrower defaults on his or her loan obligations.

Who qualifies for an FHA loan?

FHA loan programs are available to all buyers, and are designed to help credit worthy low-income and moderate-income families who do not meet requirements for conventional loans.

Benefits of an FHA loan

FHA loan programs are particularly beneficial to those buyers with less available cash. The rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans.

Benefits of FHA financing:

  • Only a 3% down payment is required
  • Closing costs can be financed
  • Lower monthly mortgage insurance premiums and, under certain conditions, automatic cancellation of the premium
  • More flexible underwriting criteria than conventional loans
    *FHA limits the amount lenders can charge for some closing cost fees (e.g. the origination fee can be no more than 1% of mortgage)
  • Loans are assumable to qualified buyers

What is a VA Loan?

VA guaranteed loans are made by lenders and guaranteed by the U.S. Department of Veteran Affairs (VA) to eligible veterans for the purchase of a home. The guaranty means the lender is protected against loss if you fail to repay the loan.

Who qualifies for a VA loan?

Veterans can apply for a VA loan with any mortgage lender that participates in the VA home loan program. A Certificate of Eligibility from the VA must be presented to the lender to qualify for the loan.

Benefits of a VA loan

In most cases, no down payment is required on a VA guaranteed loan and the borrower usually receives a lower interest rate than is ordinarily available with other loans.

Other benefits of a VA loan include:

  • Negotiable interest rates
  • Closing costs are comparable and sometimes lower – than other financing types
  • No private mortgage insurance requirement
  • Right to prepay loan without penalties
  • The mortgage can be taken over (or assumed) by the buyer when a home is sold
  • Counseling and assistance available to veteran borrowers having financial difficulty or facing * default on their loan

Although mortgage insurance is not required, the VA charges a funding fee to issue a guarantee to a lender against borrower default on a mortgage. The fee may be paid in cash by the buyer or seller, or it may be financed in the loan amount.

Uses for a VA loan

A VA loan can be used to buy a home or build a home. With approval by the VA and lender, VA loans can even be used to improve a home with energy-saving features including:

  • solar or heating/cooling systems
  • water heaters, insulation
  • weather-stripping/caulking
  • storm windows/doors
  • other energy-efficient improvements approved by the lender and VA.

Veterans can apply for a VA loan with any mortgage lender that participates in the VA home loan program. A Certificate of Eligibility from the VA must be presented to the lender to qualify for the loan.

Learn more about getting VA Loans through Loan One, a division of Benchmark Bank, today.

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