The Federal Housing Administration (FHA) insures mortgages, making it easier for families that would normally be excluded from purchasing a home to purchase a home. FHA helps to make home buying during a recession easier for people. It also has programs to finance military housing and homes for veterans. The most common FHA program is the fixed rate mortgage. The FHA fixed mortgage is open to anyone using the property as a primary residence. FHA will not finance investors.
The fixed mortgage program protects lenders against default by the buyer. The lender underwrites the loan, requesting certain criteria defined by FHA from the buyer/borrower. If the borrower can meet these requirements, FHA insures the loan.
FHA fixed mortgage loans require lower down payments than conventional mortgages as low as 3.5 percent, compared to up to 10 to 15 percent for most conventional mortgages. This means the loan to value on the property can be as high as 96.5%.
FHA allows the seller to give up to 6% in selling concessions to the buyer to assist with the closing cost. This makes home purchase by the borrower easier, as the borrower will not need to come up with closing costs. Closing costs can range from 2 to 10 percent of the purchase price of the home, depending on the lender.
Lender fees are also limited in FHA fixed mortgage loans. One big lender fee that is capped is the loan origination fee. If the borrower elects to go with an FHA loan, the lender may not charge more than 1 percent of the amount of mortgage for the origination fee.
HUD also sets limits on the amount of a purchase price that can qualify for an FHA loan. These limits vary by state and can be found on fhaloan.com. The limits ensure that FHA loan programs serve families with low to moderate income. In order to apply for an FHA loan, find an FHA-approved lending institution.
FHA loans do require that the borrower pay mortgage insurance. FHA charges .55 % of the loan amount each year for mortgage insurance. Once the loan value reaches 78 % and the borrower has paid the premiums for five years, the borrower will no longer have to pay mortgage insurance.
Borrowers generally must have a maximum of 29 percent debt to income ratio to qualify for an FHA loan. This is figured by dividing the total house payment by gross monthly household income. If the result is larger than 29 percent, the borrower cannot qualify for an FHA loan.
Conventional Home Loan
A conventional loan is a lender agreement that's not guaranteed or insured by the federal government under the Veterans Administration or the Federal Housing Administration, or the Rural Housing Service (RHS) of the U.S. Department of Agriculture. A conventional loan can, however, follow the guidelines of government sponsored enterprises (GSE's) like Fannie Mae or Freddie Mac. Both Fannie Mae and Freddie Mac are stockholder-owned corporations and are not part of the federal government.
At one point in our history, conventional loans were the only mortgage loans available and they were all made by local lenders such as banks, savings and loans, and credit unions. They kept and serviced these loans in their own portfolio until they were either paid in full or foreclosed on.
In the late 1930's, a secondary market was created which allowed these local lenders to sell their loans, getting the full payment much more quickly. Then the organizations that purchased the loans owned the agreement and collected payments from the borrower. Today it is very common for lenders to sell their loans to the secondary market.
Conventional loans may be "conforming" and "non-conforming". Conforming loans follow the terms and conditions set by Fannie Mae and Freddie Mac. Nonconforming loans don't meet Fannie Mae or Freddie Mac qualifications, but are also considered conventional.
Another category of loans, jumbo loans, fall outside of Fannie Mae eligibility but is also considered conventional. A jumbo loan is a loan above the maximum loan amount established by Fannie or Freddie and they usually have a higher interest rate.
The 2009 conforming loan limits remain at the limits set in 2006, 2007 and 2008. These guidelines put the maximum price for a first mortgage at $417,000 for a single-family dwelling. If you live outside of the 48 contiguous United States (in Guam, the Virgin Islands, Hawaii, or Alaska), or the dwelling is for a two-family, three-family, or four-family configuration, you qualify for a larger loan limit.
Conventional loans can be fixed rate mortgage or adjustable rate mortgage.
VA (Veterans Administration)
http://www.homeloans.va.gov/lgyfaq.htm
What is a VA loan? A Veterans Administration (VA) loan can be used to help American servicemen or women and/or their spouses secure financing for a mortgage purchase. You can check with the Veterans Administration (through its website or through other information exchanges) to find out whether you are eligible given your service history. Only service members who have received honorable discharges and who have served 90 days or more may qualify for VA loans.
Bear in mind that the Veterans Administration isn't actually giving money towards your house or property. It provides a kind of insurance to lenders that you will make good on your obligation. If you get a loan for $144,000 or less, the VA will back you up to the tune of about $36,000 (this number may vary depending on the terms of your contract and agreement with the lender). This is unlike a conventional loan the government does not insure.
If you take out a mortgage for more than $144,000, the VA will back you up with $60,000 worth of funds if you default. Bear in mind this money won't go to your pockets -- it will go to the lender to whom you defaulted.
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