FHA Loans

Unlike conventional loans, FHA loans are government-backed, which protects lenders against defaults. An FHA home loan works like any other mortgage in that you borrow a certain amount of money from a lender and pay it back, typically over 30 years. The main distinction is that FHA loans charge both upfront and monthly mortgage insurance premiums, often for the life of the loan.

Features

+ -Small down payment
  • Requires as little as 3.5 percent down,
  • Allows for a higher monthly debt
  • Allows lower credit scores as well as some credit blemishes.
  • Allows higher seller contributions
+ -Other peoples’ money
It’s easier to use gifts for your down payment and closing costs with FHA financing. Also, sellers can pay up to 6 percent of the loan amount toward a buyer’s closing costs. You’re most likely to benefit from that in a buyer’s market, but even in strong markets, you can potentially adjust your offer price enough to entice sellers.
+ -A chance to reset
With a recent bankruptcy or foreclosure in your history, FHA loans make it easier to get approved. Two or three years after financial hardship is typically enough to qualify for financing. Home improvement and repairs: Certain FHA loans can be used to pay for home improvement (through FHA 203k programs). If you’re buying property that needs upgrades, those programs make it easier to fund your purchase and improvements with just one loan.
+ -Assumable loans
A buyer can “take over” your FHA loan if it’s assumable. They pick up where you left off, benefiting from lower interest costs (because you’ve already gone through the highest-interest years, which you can see with an amortization table). Depending on whether or not rates change by the time you sell, the buyer might also enjoy a low interest rate that’s unavailable in the current environment.

VA Mortgages

A VA loan is a mortgage that is made by private lenders, but partially backed by the Department of Veterans Affairs. There are no limits on how much you can borrow. but there are limits on how much the VA will guarantee.

Features

+ -No down payment
Eligible homebuyers are not required to have a down payment in most cases - typically cited as the greatest VA loan benefit. 100% Financing
+ -Limitation on buyer's closing costs
Sellers can pay all of a buyer’s loan-related closing costs and up to 4 percent in concessions.
+ -No monthly mortgage insurance
FHA loans come with both an upfront and an annual mortgage insurance charge. Conventional buyers typically need to pay for private mortgage insurance unless they’re making a down payment of 20 percent or more.