Finding the right home loan can seem like a daunting task but if you are in the position that most first time home buyers are, it is most likely pretty simple. Most people buying a home plan to be home owners for the rest of their lives which means that they are most often looking for a house with an affordable 30 year fixed-rate mortgage. This is a predictable scenario for someone with a job, a career and a family but those who have chosen a different path can use their first real estate purchase as a way to build future wealth. Just about anyone in this country who has built any sizable amount of wealth has done so with the help of smart real estate investments, starting with choosing the right home loan for their first house. Often, because they or even a family man or woman who is not starting with a lot of money, they do not have much for a down payment so they seek out loans that require the least amount in order to qualify. What they find in most cases are FHA loans and because they are backed by the federal government, FHA-approved lenders can approve and fund loans with a less stringent qualification process.
The Federal Housing Administration (FHA) is a government entity whose main focus is to make home loan opportunities available to working Americans who want to be home owners. The FHA guarantees these loans in order to provide an incentive for lenders to want to fund these loans because they are taking a mitigated risk were otherwise, they are completely responsible for loans they fund if the borrower were to ever go into default and not be able to continue paying the loan. The Veterans Administration (VA) also has a lending program where they do the same thing that the FHA does in terms of guaranteeing the loans, but there are many differences between the two starting with who qualifies. Both programs offer some form of assistance if the borrower were to ever experience a financial hardship and have difficulty paying the loan. The VA will assign a representative to deal with the lender personally regarding the matter and those with an FHA loan may be able to get a forbearance approved where their loan is modified or a portion of is deferred without interest to give the borrower an opportunity to regain control of the situation.
Only active military personnel, veterans and their widowed spouses (if the killed during active duty), military reservists and those who served in the National Guard are eligible for VA loans. Anyone with a 580 credit score, a decent debt to income ratio and access to a 3.5% down payment are qualified for an FHA loan because there are no military qualifications whatsoever. Unlike FHA loans though, VA loans do not require a down payment at all. These are some of the only home loans available to anyone that do not require a down payment, which is quite remarkable considering that conventional loans are going to demand anywhere between 10-25% for a down payment. For this reason alone, FHA and VA loans are great for people who do not have access to tens of thousands of dollars for a home. VA loans do require that a 2.25% funding fee is paid though in order to qualify for the loan. It should be noted that the 3.5% down payment that is required for an FHA loan can be provided as a gift from one of the borrower’s family members, employer or a state down payment assistance program.
For those who qualify for the VA loan program, there is another benefit that often makes this loan the best possible one for them. VA mortgage loans do not require private mortgage insurance (PMI). This is a huge help because for anyone who gets a home loan these days whether it is a conventional loan or one given under the FHA guidelines, if a 20% down payment is not provided then PMI has to be paid on an annual basis. PMI is normally rolled into the borrower’s monthly mortgage payment but even on a house that costs as little as $200,000, it adds $200 a month to the payment. Over the course of a 30 year fixed-rate mortgage this will turn into $72,000. That is a lot of cash that most people would rather keep in their pockets to spend on other things that they want or need in their lives. Getting the right loan is important, because it can keep a lot of money in the pockets of borrowers during the course of their home loan that can help them with their other expenses in life.