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Government mortgages can be wonderful alternative choices to help you get the property and terms that work for you. There are two government-related programs that guarantee large portions of loans made by others. The Federal Housing Administration (FHA) and the Veterans' Administration (VA) provide financing guarantees to approved lenders to help many people, who may not qualify for conforming loans, to purchase property at reasonable terms.
Established in 1934 as part of President Roosevelt's New Deal program, the FHA was created to help people purchase homes. The original “non-conforming” or sub-prime mortgage product, the FHA program does NOT directly make loans; they guarantee them. To apply, you need the same information required for conforming mortgage programs (income pay stubs and W-2's, bank account information, last two years' tax returns, and all open loan information). If you are a military veteran, you should also have your Certificate of Eligibility and DD-214. If you don't need an FHA loan, you'll be better off applying for a conventional mortgage since you will pay a “guarantee” fee every month to cover the insurance FHA is providing. The cost of the FHA guarantee is 1.5% of your loan amount, charged at closing, and 0.5% annually on your outstanding loan balance. But if your credit is less than perfect and/or if you have limited cash for down payment and closing costs, an FHA mortgage loan is an excellent choice.
If you are a military veteran, the VA loan program might be the best choice for you. To apply, you will need all of the usual information (see above), including your Certificate of Eligibility. You can obtain this certificate through the VA or directly online through a number of sources. You will qualify whether you were a member of the regular military, the National Guard, or reserves. The good news: You can purchase real estate with no money down, no ongoing insurance fee (as with FHA), and your loan may be assumable, making it easier to sell your home in a period of rising interest rates. The only downside is that you will pay a “funding fee” at closing. The amount will vary depending on whether you are a veteran of the full time military or National Guard/reserves, the amount of your down payment, and whether you are using this benefit for the first time or have used it previously. If your credit is less than perfect and/or you are short of down payment and/or closing cost funds, this program will help you buy the home you want.
|Sheri Ann Richerson|