Government Backed Loans - VA & FHA

The most popular government loans are VA and FHA. The VA is for persons who have served in the military and have been honorably discharged from active duty or those who are currently serving in the armed forces.

These loans are backed by the US government which means, should the home be foreclosed on, the government will take the house back and pay the lender a set percentage of the loan amount for the defaulted loan.

VA loans are made by private lenders, such as banks or mortgage companies to eligible veterans for the purchase of a home they will occupy. The guaranty replaces the protection the lender usually receives, by requiring a down payment, allowing you to obtain favorable financing terms. The VA guaranty, means the lender is protected against loss, if you fail to repay the loan.

One advantage of an FHA mortgage is there are several fees the loan officer is legally not allowed to charge. This can make your closing costs much lower then if you took a non FHA program.

FHA has announced that in January of 2007 a true 100% loan program will be available. This will be the first time FHA has ever allowed 100% financing.

VA and FHA loans usually have excellent interest rates. Also, some of their guidelines are less stringent than other loan programs, such as credit history. This makes them a good choice for someone buying their first or second home.

Usually the max amount for an FHA loan is 97% or the maximum amount the Lender and lend is 97% of the value of the home.

With a VA loan you will have to pay a funding fee that is a percentage of the total loan amount. The amount you pay will be based upon your type of service (active duty or the reserves/guard), and the number of times you have used your entitlement in the past. If you are a veteran receiving disability due to a service connected injury you are exempt from paying the funding fee, but still eligible for all of the other benefits the VA loan has to offer.