Loan Programs

FHA Loan

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FHA loans are loans that are insured by the Federal Housing Administration. Because the loan is insured by the government, this allows lenders to be more flexible with the credit requirements for the loan. Borrowers can still receive an FHA loan if they have filed bankruptcy or even been foreclosed on as long as the bankruptcy was discharged 2 years prior and the foreclosure occurred 3 years prior (from the date the deed was transferred out of their name). Borrowers can get an FHA loan with as little as 3.5% down. FHA loans are very forgiving in terms of both credit and DTI. They do require an upfront mortgage insurance as well as insurance paid monthly for the life of the loan. Another benefit of FHA loans is that borrowers can get “gift funds” from eligible donor to pay for up to 100% of borrower’s down payment and closing costs. 


Benefits of FHA loans at a glance:


· Low Credit Requirements

· Very Forgiving DTI Requirements

· Often Lower Rates than Conventional

· Very Low Down Payment Requirement

· Bankruptcy & Foreclosure Proof

· Can Have Co-Borrower

Conventional Loan

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Conventional loans are, simply stated, any loan that is NOT insured or guaranteed by FHA, VA, or USDA. Because the loan is not insured, it tends to be a stricter loan program, in terms of credit and DTI (Debt to Income). For first-time home buyers, or anyone that has not owned a home in 3 years, the down payment can be as low as 3%. Outside of those, down payments range anywhere from 5-20%. On conventional loans, the lender takes on greater risk and thus, PMI (Private Mortgage Insurance) is required until LTV (Loan to Value) reaches 80%. Once the equity reaches 20% the borrower can file to have it cancelled, which is why a greater down payment is a benefit to the borrower. While VA loans do not require a down payment, both conventional loans as well as FHA loans have minimal down payment relative to other loan programs. Conventional loans also come in many different options, from 15-year to 30-year fixed rates, ARM’s (Adjustable Rate Mortgages), and more.


Benefits to Conventional Loans:


· Low Down Payment Requirement

· Low DTI Requirement

· Can Drop Mortgage Insurance at 80% LTV

· “Can” Have Higher Rate than FHA, but Ability to Drop Insurance is Often Cheaper Over Life of Loan

· Low Credit Requirement

VA Loans

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VA loans are the unquestionably the best loan products on the market. Reserved for members of the Armed-Forces, VA loans have numerous benefits beginning with 0% down payment requirement. Because VA loans are intended for military veterans, co-borrowers are an option, but the co-borrower needs to be a spouse. These loans are also flexible in terms of credit requirement, much like FHA loans. VA loans can also be obtained by people who have filed bankruptcy and/or been foreclosed on, as long it took place 2 years prior to loan origination. No mortgage insurance is required for VA loans, but there is a funding fee which the borrower has the option to roll into the loan amount. However, if the borrower has a documented VA disability the funding fee is completely waived. Rates for VA loans are lower than any other loan product. To qualify for VA eligibility, borrower had to either serve a minimum of 2 years active duty or 6 years guard duty. While DTI is still evaluated, residual income is the primary focus of VA loans. Lenders look at residual income to ensure the borrowers capability of paying off the loan.


Benefits of VA Loans:


· 0% Down Payment Requirement

· Extremely Low Rates

· Focus on Residual Income Rather than DTI

· Bankruptcy and Foreclosure Does Not Prevent Borrower from Qualifying

Low Credit Requirement 

USDA Loans

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USDA loans are issued through the USDA Rural Development Guaranteed Housing Loan Program. Like FHA loans, because these loans are government-backed, mortgage insurance is required. USDA loans require 0% down payment, meaning 100% financing is available, which makes these loans attractive to borrowers. USDA loans are also the only type of mortgage loan that allows a borrower to roll closing costs into the loan itself. The seller can also pay up to 6% of closing costs for the buyer. Aside from VA, USDA mortgages requires the lowest mortgage insurance of any loan program. There is an up-front mortgage insurance payment of 1% that is added into the loan. It is easier to qualify for USDA than Conventional, and there are 15-year and 30-year rates available.


Benefits of USDA Loans:


· 0% Down Payment Requirement

· Closing Costs Can Partially be Paid by Seller

· Easy to Qualify

· Closing Costs Roll Into Loan Itself

· Forgiving DTI Requirement