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A Primer on Government Home Loans

There are 3 types of government loans. All are for primary residences and include a guarantee fee or mortgage insurance.  The best known is FHA or the Federal Housing Administration. FHA loans only require a minimum of 3.5% down, have easier underwriting standards, credit scores as low as 580, allow a slightly higher debt to income ratio than conventional loans. The split mortgage insurance allows a borrower to finance part of the mortgage insurance and pay a monthly amount. This helps to keep the total mortgage payment lower than a conventional loan; however, the mortgage insurance is for the life of the loan.  There are maximum loan amounts per county, in our local community the for a single-family home is $356,362. Duplexes and triplexes even higher. FHA is used with down payment assistance programs.

The second government loan is through the Veterans Administration. To qualify a borrower must be active duty, a military branch reserve, national guard, Coast Guard, discharged veteran, or the spouse of a veteran killed in combat.  VA loans are 100% financing or no down payment. There is a guarantee fee typically financed into the loan. VA is very demanding on property conditions. VA allows credit scores down to 580. VA does not have a maximum loan amount, but they do have a maximum guarantee amount.  VA allows multiple VA loans to the same borrower, provided they have additional eligibility.

The USDA rural housing loan is 100% financing for borrowers buying a home in a rural location. To be sure USDA has a locator service online to verify the property is in an eligible location.  There are also income and asset limitations on USDA loans.  USDA requires a 640-credit score, but a manual underwrite for approval can be done for borrowers between 620-639.  USDA also has a guarantee fee plus a small monthly mortgage insurance fee.  The guarantee fee is typically financed into the loan while the monthly amount is part of the monthly payment. USDA has 2 programs – most lenders use the guarantee program, but a very low-income buyer can use USDA direct lending. USDA is a difficult loan to gain approval because of the 100% financing in rural areas.

All three loan programs have other unique characteristics. Please contact me to find out more information at 407-230-6510 or speisner@prmg.net.

 

Stuart Peisner is a mortgage loan originator with Paramount Residential Mortgage Group a national mortgage banker closing over $1 billion in loans each month.

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