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FHA and VA Loans
FHA
FHA's Title II, Section 203(b) mortgage insurance program
is the most commonly used. The program allows a borrower
to purchase a new or existing one- to four-family home in
an urban or rural area. The program has been essential in
helping low- and moderate-income families become
homeowners for two reasons. First, the program lowers some
of the costs associated with obtaining a mortgage. Second,
because lenders are insured against default, they can take
greater risks by lending in situations which fall outside
of conventional standard underwriting guidelines. FHA
charges mortgage insurance premiums for these loans. The
premiums are used to pay lenders in the event of the
borrower's default on the mortgage. The borrower pays an
up-front mortgage insurance premium (MIP) and an annual
premium. The up-front premium can be financed into the
loan. The Mutual Mortgage Insurance Fund is sustained
entirely by borrower premiums. Currently, the up-front MIP
is 2.25 percent of the base loan amount, or 1.75 percent
for a qualified first-time homebuyer. The monthly premium
is 1/12 of 1/2 percent of the outstanding principal loan
balance. Unlike Private Mortgage Insurance (PMI), which
can be cancelled, FHA mortgage insurance lasts for the
life of the loan. MIP is also generally more expensive
than PMI. Any Unused MIP is refunded when the loan is paid
off.
VA
The U.S. Department of Veterans Affairs guarantees loans
made by institutional lenders to eligible veterans. The
guarantee helps protect the lender in the event of the
borrower's default. The VA charges a funding fee for each
loan, which varies with the amount of the down payment and
the status of the borrower (reservist/active
duty/veteran). The funding fee may be included in the loan
amount.
The funding fee for veterans is 2.15 percent for purchase
or construction loans with down payments of less than 5
percent, refinancing loans and home improvement/repair
loans.
The funding fee for veterans is 1.5 percent for purchase
or construction loans with down payments of at least 5
percent but less than 10 percent
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following states: AZ, NM, ID, CA, MO - BK#0906222
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