FHA/VA Loans

FHA Loan

Dreaming Of Owning A HomeFHA stands for Federal Housing Administration and an FHA insured loan is a Federal Housing Administration mortgage insurance backed loan provided by an FHA approved lender.

Although it is commonly known as a first time home buyer program, it is a program that is open to ALL borrowers that can qualify since there is no income restriction.  However, there is a cap on how much one can borrow depending on the county in which the property is located.

Currently, the minimum required down payment is 3.5% with 1.75% up front mortgage insurance(normally financed into the total loan amount plus a monthly mortgage insurance premium (MIP) which varies based on the amortization term and LTV (loan to value).  This program also allows up to 6% seller contribution towards closing costs and prepaids.

Example:

  • Sales Price
$150,000
  • Loan Amount
$5250 = ($150,000 x 3.5%)
  • Loan Amount
$144,750 = ($150,000 – $5250)
  • Financed Up Front MIP
$2533 = ($144,750 x 1.75%)
  • Total Loan Amount
$147,283 = ($144,750 + $2533)

The borrower can put down as much they want but if the down payment is between 10- 20% or more, it makes more sense to consider other loan options such as a conventional loan.  One’s entire credit profile must be reviewed in order to determine the best financing option.

History of FHA

Federal Housing Administration, which is part of the Department of Housing and Urban Development (HUD), was created by the National Housing Act of 1934.  It was established mainly to increase home construction, reduce unemployment, and to operate various loan insurance programs.  The administration does not make loans nor does it build houses.  In a nutshell, the federal government, through the Federal Housing Administration insures the lending institution against loss of principal in case the borrower fails to meet the terms and conditions of the mortgage.

The most common FHA program is section 203(b) which is mortgage insurance for 1-4 unit family homes but FHA section 203(k) is growing in popularity.  The section 203(K) program is the Department’s primary program for the rehabilitation and repair of single-family properties.  It is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities.

Call us for a free evaluation and preapproval at 512.740.0807!

VA Loan

A VA loan is a mortgage loan that is guaranteed by the United States Department of Veteran Affairs which may be issued by qualified lenders.  This program was designed to offer long-term financing to eligible American Veterans or their living spouses in areas where private financing is not generally available and to help veterans purchase properties with no down payment and no mortgage insurance.  It is truly a fantastic program for qualified veterans.

The original Servicemen’s Readjustment Act, passed by the United States Congress in 1944 extended a wide variety of benefits to eligible veterans.  Under the law, the VA is authorized to guarantee or insure home, farm, and business loans made to veterans by lending institutions.  Until 1992, the VA loan guarantee program was available only to veterans who served on ACTIVE DUTY during specified periods.  However, the program eligibility was expanded to include Reservists and National Guard personnel who served honorably for at least 6 years without qualifying under the previous active duty provisions.

Who is Eligible for a VA Loan?

  • Veterans
  • Active-duty personnel
  • Reservists/National Guard members
  • Some surviving spouses

Please keep in mind that the federal government does not generally make direct loans.  The government simply guarantees loans made by mortgage lenders.  VA  appraises the property, then guarantees the lender against loss of principal if satisfied with the risk involved.

In a nutshell, you can’t beat 100% financing with no mortgage insurance.   However, VA program has FUNDING FEES that must be paid to VA unless the veteran is exempt from such a fee because he or she receives a minimum of 10% VA disability compensation.  This FUNDING FEE can be paid in cash or included in the loan amount.  In general, most borrowers opt to include it in the loan amount.  Other closing costs such as VA appraisal, credit report, loan processing fee, title search, title insurance, survey charges, insurance, etc.. may not be included in the loan.  However, the seller may pay these fees on behalf of the VA borrower.  For those seeking 100% financing, Great Hills Lending Group will work with you and your Realtor to make sure that the right amount is negotiated into the purchase contract.

You do not have to pay the funding fee if you are a:

  • Veteran receiving VA compensation for a service-connected disability, OR
  • Veteran who would be entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay, OR
  • Surviving spouse of a Veteran who died in service or from a service-connected disability

The funding fee for second-time users who do not make a down payment is slightly higher.  National and Reserve Veterans also pay a slightly higher funding fee percentage.

What are the BENEFITS of a VA Loan?

There are many with some listed below as taken directly from the Veteran Affairs site:

  • No down payment (unless required by the lender or the purchase price is more than the reasonable value of the property).
  • Ability to finance the VA funding fee
  • No mortgage insurance premiums
  • Assumable mortgage
  • Right to prepay without penalty

How can Veterans get a VA Loan?

Give us a call at 512.740.0807 to apply by phone.