FHA and VA loans are classified as unconventional loans because they are backed by the government.
The Federal Housing Administration, generally known as FHA, provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934. The FHA became a part of the Department of Housing and Urban Development's (HUD) Office of Housing in 1965.
FHA mortgage insurance provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders take on less risk because the FHA will pay a claim to the lender in the event of a homeowner's default. Loans must meet certain requirements established by FHA to qualify for insurance.
- FHA was created because the housing market was flat on its back in the 30s.
- FHA does not make loans . Approved lenders negotiate FHA loans.
- FHA loans have a low down payment.
- FHA loans have less stringent qualifying standards , and closing costs may be financed.
- There can be no pre-payment penalty as long as the lender receives a minimum of 30 days notice of payoff.
- The borrower must have a cash down payment but the cash may be a gift.
- FHA loans are not assumable without complete buyer qualification.
- Eligible properties for the FHA loan would be single family homes, one to four units owner occupied, and qualified condominium communities.
- FHA loans are fully amortized, thus balloon mortgages are not allowed.
- If discount points are charged, they may be paid by the buyer or the seller.
The VA home loan guaranty program was established in 1944 to aid veterans returning from war.
The goal of VA home loan benefits was to help veterans purchase or refinance a home in gratitude for the sacrifices they made by serving our country.
A VA loan can be used to purchase a house, condominium, or townhouse. You can also build a home, make energy-efficient home improvements, or refinance your mortgage.
There are several reasons why a VA loan may be preferable to a standard loan. Most importantly, if you qualify, you may obtain a VA loan even if you do not qualify for other loans.
The VA does not require a down payment; however, the lender can require one.
VA loans rates are often lower interest rates than conventional loans, and many times you can negotiate the interest rate with the lender.
There are no mortgage insurance premiums on VA loans, and assumable mortgages are permitted. Closing costs can be lower than other forms of financing, and there is no penalty for prepaying your mortgage, as in some other forms of loans. In addition, VA assistance is available to those who qualify if temporary financial difficulty occurs.