September 30th, 2016 1:41 PM by Michael Loffredo, CMC
Government mortgages refer to those
programs that are backed or insured by our federal government. Some are
partially insured, such as FHA, and some are fully guaranteed, like VA.
These government backings allow
banks to make these loans to lesser qualified borrowers or lower down-payment
buyers and therefore expand homeownership throughout the country.
Here is a sample of these
VA- the VA loan is for military
veterans and their spouses. There is no minimum down payment required so many
vets can purchase homes with zero down. There is also no pmi but the VA
requires an up-front funding fee of 1.5%- 3.3%, depending on the loan type. This
up-front fee is financed so the veteran still does not have to pay it out in
cash. These features make the VA the least expensive government mortgage
otherwise known as Rural Housing. This program also offers zero down but is only
open to home buyers in certain rural areas that also meet the low to moderate
income limits. Income limits vary by county so check this chart for your local
USDA mortgages have a pmi-like
monthly fee, but offer rates as low as VA and FHA.
FHA- the largest government
program and is open to all borrowers in all areas regardless of income. FHA has
the most tolerance for lower credit scores and allows higher debt-to-income
ratios. These loans do require monthly mortgage insurance (mi) and an up-front
mi portion that is financed on top of the beginning loan amount. FHA loans have
a minimum down payment of 3.5%.
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