If you want to purchase a home and you don’t have a large house down payment saved up, let’s look at your options. The good news is that the federal government has programs in place to help those with lower incomes take part in the pride of home ownership. One of these programs is from the Federal Housing Administration (FHA) and the other is governed by the Veterans Administration (VA). There are differences between the two, but they share a common goal in providing assistance to borrowers.
The FHA does not provide mortgages, but rather it insures the loans made by private lenders and banks. These loans are called FHA Home Loans. It gives the lenders added security so they are more willing to loan to people with lower incomes and small down payments (much less than the conventional 20% usually required).
The VA Home Loan Guaranty Program was designed to help America’s veterans and active-duty personnel purchase and retain homes in recognition for their service to our country. Just like the FHA, the VA does not issue the loan, but it guarantees loans made by private lenders and banks.
One advantage to an FHA or VA loan is that you don’t need a huge income to qualify. As with virtually any type of financing, you still need a decent FICO credit score. In addition, these programs have very low down payment requirements – as low as 3.5% of the purchase price for an FHA loan. The VA program is even better if you qualify, as it is zero down and you pay no closing costs except for the loan origination (funding) fee, which is 2% of the loan when this program is used by a Veteran the first time. A veteran can use their VA eligibility over and over, but the funding fee would then be 3.35% on all subsequent VA loans.
FHA mortgages have a maximum loan value of $294,515 as of 2018 and often have interest rates slightly below standard market rates, which translates into lower monthly payments. This is a tremendous savings over the life of the loan. You are required, however, to pay a Mortgage Insurance Premium (MIP) of 1.5% of the mortgage and this can be financed into the loan. VA mortgages, like conventional mortgages, have a maximum loan value of $453,100 as of 2018.
Useful links to more information about FHA and VA mortgages:
