There are many steps that you have to take when your looking into buying a home. One of the best steps that you can take is getting pre-approved for a loan and knowing what types of loans are available. Here is a quick guide to getting to know what types of loans are out there and what type of loan best suits your needs.
A VA loan was designed and is guaranteed by the US Department of Public Affairs, for eligible American Veterans, or their surviving spouses. A VA loan allows for veterans to purchase a home with no money down. “A VA loan allows veterans 103.15% financing without private mortgage insurance (PMI) or a 20% 2nd mortgage and up to $6,000 for energy efficient improvements. A VA mortgage 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.”-Source Wikipedia. The VA also insures the loan at no cost to the veteran, besides their funding fee.
FHA loans are Federal Housing Administration insured backed mortgage loans. “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.” -Source Wikipedia. FHA loans arose during the Great Depression when the rates of foreclosures and people being in default drastically increased, it created insurance for lenders on the loans. Some are regulated and subsidized by the government. Nowadays because of PMI, FHA loans are primarily used to help people who cannot afford a conventional down payment or for people who do not qualify for Private Mortgage Insurance. In the past recent years due to the recession this program has been modified to accommodate.
Knowing the difference between these two loans allows you to know the correct steps into creating a better home buying experience. The best way to figure out what loan is right for you is to talk to a lender. Getting the exact budget, wants and needs together with a lender is the first step in the home buying process. Take it from someone who has gone through the home buying experience. Being able to connect with a lender is one of the most important steps in the home buying process. There are other types of mortgages out there and lenders help to figure out which one will best suit your needs.