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While there are benefits that the Federal Housing Administration (FHA) and the Veterans' Administration (VA), their interest rates are not usually much higher than the regular market. In the case of the FHA, your interest rate will usually be a bit higher because their fee for guaranteeing your loan (0.5%) is added to your regular monthly payment of principal and interest. Therefore, regardless of your balance, if the current rate offered for FHA loans is equal to the normal market rate, your payment will still be slightly higher.
VA mortgage rates are also right around market. The Annual Percentage Rate (APR) you will see on your Truth-In-Lending (TIL) statement will be a bit higher because the VA charges a “funding fee” instead of an ongoing guarantee fee. For instance, a veteran using his/her “exemption” for the first time and putting no money down will pay a funding fee of 2.15 percent of the amount of the loan. This rate fluctuates depending on how many times a veteran has used this benefit and how much money being put down on the new purchase.
There is another issue with VA loans that can sometimes pose a problem for you. The majority of closing costs (title examination, settlement fees, lender fees, etc.) are classified as “non-allowable”, meaning that the buyer is prohibited from paying them. Since these fees are normally charged by these entities even in a VA closing, this puts the obligation on the seller to pay these. As you can imagine, sellers are less than thrilled about this and many will simply refuse to sell to a VA buyer. However, many buyers and their real estate brokers will negotiate deals with sellers to more or less include these fees in the selling price. In reality, this means you, as a buyer, will have much less wiggle room to pay less than the asking price for a home you want to buy.
The note interest rates of both government mortgage products will be at or right around market. You will pay just a bit more with these loans to pay for the guarantees they provide to mortgage lenders and to receive the benefits they offer.
|Sheri Ann Richerson|