VA, FHA, GRH & PHFA
The Government Loans
How do these differ from conforming loans? Government loans differ in several ways; First is that the guidelines are set by a government entity such as “VeteransAdministration” (VA), “Federal Housing Administration” (FHA), “United States Department of Agriculture” (USDA aka GRS or RHS) are the Federal programs along with the state program “Pennsylvania Housing Financing Agency” (PHFA). The guidelines tend to favor the borrower more so than the lender and may be more liberal in credit and underwriting than conforming loans. Second is that they may also act as the insurer and have options that are more borrower friendly. Insuring the loan means that if the loan goes bad they will take back the loan and foreclose on the property reducing the lenders risk.
CAUTION: The Agency sets the rules, the Lender lends and the Agency insures the loan. If it was only that easy, You must be careful because lenders can also add additional rules, limits, price adjustments beyond the sometimes tricky agencies guidelines called overlays. These overlays could mean a loan gets declined at lender A and approved at lender B or large differences in pricing. At Norstar we are experienced and knowledgeable about these products and would be glad to answer any questions you have and we always offer a FREE no obligation pre-approval!
Let’s take a look at each one individually
FHA is available to everyone! Many people believe it is for 1st time buyers only. This may be because you can usually only have 1 FHA loan at a time although there are a couple of exceptions. FHA is for owner occupied 1-4 family homes. There is no income limit! There is a loan amount limit that varies by county and is adjusted each year. (see below)
An FHA insured loan is a Federal Housing Administration mortgage insurance backed mortgage loan which are provided by FHA-approved lenders. FHA insured loans are a type of federal assistance and have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. To obtain mortgage insurance from the Federal Housing Administration, a mortgage insurance premium (MIP) equal to a percentage of the loan amount at closing is required (1% currently), and is normally financed by the lender and paid to FHA on the borrower’s behalf. Depending on the loan-to-value ratio, there is also a monthly premium as well.(<=95% is .85% or .0007083 monthly, 95.01% to 96.5% is .9% or .00075 monthly)
FHA primarily serves people who cannot afford a conventional down payment, have credit bumps or otherwise do not qualify for PMI. This sounds a little negative but anything but. FHA is a great loan!
A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs (VA). The loan may be issued by qualified lenders.
The VA loan was designed to offer long-term financing to eligible American veterans or their surviving spouses (provided they do not remarry). The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available and to help veterans purchase properties with no down payment. Eligible areas are designated by the VA as housing credit shortage areas and are generally rural areas and small cities and towns not near metropolitan or commuting areas of large cities.
The VA loan allows veterans 102.15 percent financing without private mortgage insurance or a 20 per cent second mortgage and up to $6,000 for energy efficient improvements. A VA funding fee of 0 to 3.15% of the loan amount is paid to the VA; this fee may also be financed. In a purchase, veterans may borrow up to 102.15% of the sales price or reasonable value of the home, whichever is less. Since there is no monthly PMI, more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment. In a refinance, veterans may borrow up to 90% of reasonable value, where allowed by state laws.
VA loans allow veterans to qualify for loans amounts larger than traditional Fannie Mae / conforming loans. VA will insure a mortgage where the monthly payment of the loan is up to 41% of the gross monthly income vs. 28% for a conforming loan assuming the veteran has no monthly bills.
The maximum VA loan guarantee varies by county. As of 1 January 2010, the maximum VA loan amount with no down payment is $417,000 Department of Veterans Affairs. http://homeloans.va.gov/docs/2010_county_loan_limits.pdf. Retrieved 2010-02-16. </ref> VA also allows the seller to pay all of the veteran’s closing costs as long as the costs do not exceed 6% of the sales price of the home.
WHAT IS A VA GUARANTEED LOAN?
VA guarantees the loan made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of an owner occupied home. To get a loan, a veteran must apply to a lender. If the loan is approved, VA will guarantee a portion of it to the lender. This guaranty protects the lender against loss up to the amount guaranteed and allows a veteran to obtain favorable financing terms.
but lenders will generally limit VA loans to $417,000. This is because lenders sell VA loans in the secondary market, which currently places a $417,000 limit on the loans. For loans up to this amount, it is usually possible for qualified veterans to obtain no downpayment financing. A veteran’s maximum entitlement is $36,000 (or up to $104,250 for certain loans over $144,000). Lenders will generally loan up to 4 times a veteran’s available entitlement without a downpayment, provided the veteran is income and credit qualified and the property appraises for the asking price.
VA LOANS OFFER THE FOLLOWING FEATURES:
- Equal opportunity for all qualified veterans to obtain a VA loan.
- No downpayment (unless required by the lender or the purchase price is more than the reasonable value of the property).
- Buyer informed of reasonable value.
- Negotiable interest rate.
- Ability to finance the VA funding fee (plus reduced funding fees with a downpayment of at least 5% and exemption for veterans receiving VA compensation).
- Closing costs are comparable with other financing types (and may be lower).
- No mortgage insurance premiums.
- An assumable mortgage.
- Right to prepay without penalty.
- For homes inspected by VA during construction, a warranty from builder and assistance from VA to obtain cooperation of builder.
- VA assistance to veteran borrowers in default due to temporary financial difficulty
USDA is the “United States Department of Agriculture”. In addition to managing food and agriculture the USDA offers financing to rural areas for infrastructure and housing needs. That’s great news to many who can take advantage of the program. The definition of rural is based on the population density. It is surprising how many areas do qualify. To check a specific area eligibility you can use the link below and enter the property address. NOTE: There are also specific property criteria in addition to the area eligibility. There is also an income restriction but unlike many programs it has compensating factors such as child care and family structure. Link provided to see if you income qualify for the program. Different from FHA & VA who insure the loan, USDA also provides the loan money so there are times that the funds run out or are not available.
FEATURES FOR USDA MORTGAGE:
- Like VA no money down with a funding fee financed in upfront.
- Seller assit up to 6% to cover closing costs
- NO monthly PMI
PHFA is the Pennsylvania Housing Finance Agency. Their mission; In order to make the Commonwealth a better place to live while fostering community and economic development, the Pennsylvania Housing Finance Agency provides the capital for decent, safe, and affordable homes and apartments for older adults, persons of modest means, and those with special housing needs.
Can be combined with FHA or VA as well as conventional.
Checkout how mortgage insurance works