VA and FHA mortgages are government insured loan programs intended to help those with low income and veterans purchase homes. Because these loans are insured by the Federal government they have less risk for mortgage lenders allowing people that might not otherwise qualify to purchase homes. Traditional mortgage loans are also insured; however, they are not insured by the Federal government but by lending institutions like Fannie Mae and Freddie Mac.
FHA mortgage loans are underwritten and insured by the Federal Housing Administration. These loan programs are typically for first time homebuyers with credit problems and require a minimum three percent down payment. Closing costs can be rolled into the loan balance with FHA programs; however, there are mortgage insurance premiums of up to 1.5% required by the housing administration. There are also borrowing limits imposed on FHA loans that vary based on the State the home is purchased.
VA mortgage loans are underwritten and insured by the Veteran’s Administration for individuals that have served in the armed forces of the United States. Unlike the FHA, the VA does not require mortgage insurance or a down payment. VA mortgage loans carry a funding fee of 2.15 percent and this fee can be rolled into your mortgage balance along with closing costs.
FHA and VA Mortgage Loans Losing Popularity
FHA and VA loans are becoming increasingly less popular and Congress has even considered doing away with these programs since 1995. One reason these loans are becoming less popular has been the abundance of loan programs available for homeowners with poor credit or little or no down-payment. Many of these programs do not have lender fees or mortgage insurance requirements.
It is possible to find 100% financing without paying insurance or rolling fees in with your closing costs. The recent credit crisis in the United States could bring FHA and VA loans back into favor as qualifying for a mortgage loans becomes increasingly difficult for homeowners with “bruised” credit ratings.
What is Streamline Refinancing?
FHA and VA loans allow for “streamline refinancing.” This means that you can refinance your mortgage with minimal documentation and underwriting without paying lender fees. The basic requirements are that you not be delinquent in your mortgage payments, that refinancing results in a lower payment, and that you cannot receive cash back from refinancing the loan.
There are a number of different mortgage programs available for streamline refinancing. Many lenders charge a higher mortgage interest rate for rolling closing costs into your loan balance. This is why comparison shopping and having a current appraisal is important before you apply for streamline refinancing. You can learn more about your mortgage refinancing options, including expensive mistakes you’ll want to avoid with my free mortgage toolkit.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
