June 11, 2010, Newsletter Issue #222: “Government” Mortgages

Tip of the Week

There are two products commonly known by as "government mortgages". One is the Federal Housing Authority (FHA) guaranteed mortgage, the original “non-conforming” home loan. The other is the Veteran’s Administration (VA) mortgage loan, designed to help former members of the military purchase owner-occupied homes.

FHA is recognized as the original non-conforming or sub-prime mortgage loan because it allows small down payments (3%), accepts borrowers with less than outstanding credit, and permits improvement, repair, or rehabilitation dollars to be included in the purchase mortgage amount. Particularly for a first home, FHA can help you achieve your goal with the relaxed credit and down payment rules. You will pay an insurance fee of .5% on your monthly mortgage payment for their guarantee.

The VA, like the FHA, does not actually make loans; they guarantee them to the actual lender. As a benefit to US military personnel, the VA has helped millions of veterans since the late 1940’s purchase owner-occupied homes. With no down payment required and flexible underwriting allowing borrowers with damaged credit to qualify for loans, the VA remains an important lending source for military veterans wishing to purchase real estate.

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