June 29, 2018
June 29, 2018
Buying a home is a big step that requires commitment and capital. However, coming up with the down payment can be difficult. Many of us don’t have tens of thousands of dollars available for a 20% down payment.
The good news is that there are government programs designed to help you get into a home with a smaller down payment. Government-backed programs from the Federal Housing Administration (FHA) and the Veterans Administration (VA) can allow you to accomplish your dream of homeownership without the huge down payment.
First of all, the government doesn’t actually make these mortgage loans. The loans are made by participating banks, and the government backs them. These loans come with:
Additionally, you might find that you qualify for mortgage rates similar to market rates. It’s important, no matter how you proceed, to make sure that you shop around and compare mortgage rates so that you know you are getting the best deal.
There are some differences, however. As you compare VA and FHA mortgage loans, pay attention to these differences so that you know what you qualify for — and what will be best for you.
In general, VA loans can potentially offer a better deal than FHA mortgage loans. However, to take advantage of a VA loan, you have to meet the requirements of being a veteran or meet other criteria (such as being the spouse of a deceased veteran).
With a VA loan, you might not need to even put money down at all. Some lenders will give you a 0% down home loan through the VA program. On top of that, you don’t have to pay a monthly private mortgage insurance premium.
You do have to pay an upfront funding fee that amounts to between 0.5% and 3.3%. This can be a little more expensive than the upfront premium that comes with the FHA loan. However, the other advantages to a VA loan can make it a desirable option for many homebuyers that qualify.
Because you don’t need military service to qualify, it can be easier to get the FHA loan in some cases. The minimum down payment you need is 3.5%. However, if your credit score is below 580, you need to make a down payment of at least 10%.
Even though this can be difficult in some cases, the reality is that many conventional lenders won’t even consider you for a mortgage if your credit score is below 620. The advantage to turning to a government-sponsored program is that your credit isn’t going to be as big an impediment.
The downside to FHA mortgage loans is that you have to pay monthly mortgage premiums. On top of that, there is an upfront funding fee of 1.75%. In some cases, you can get a lower funding payment, but you have to meet additional requirements.
Do your homework to make sure you choose the right mortgage for you. It’s vital to do your homework. Check your eligibility for different programs, and compare VA and FHA loans to the possibility of conventional mortgages. A good mortgage broker can help you compare available programs and figure out what you qualify for — and what will be the best deal for you.