There are two government mortgage options available: FHA and VA.  FHA stands for Federal Housing Administration and VA stands for veterans Administration.  FHA, is a govenment insured loan, while VA is a government backed mortgage.  What are these mortgage options and how can they help you as a pottential home buyer?

FHA currently offers a 97.15% maximum mortgage loan to value.  This means if you are purchasing a $200,000 home, you can get an FHA mortgage to cover up to $194,300, or 97.15% of $200,000.  This percentage does vary as you get to lower purchase price amounts.  Beginning on January, 1 2009, the maximum loan to value decreases to 96.5%.  When obtaining an FHA mortgage, there is a mandatory 1.75% upfront mortgage insurance premium, based on the loan amount, that can be paid in one of two ways.  The 1.75% fee can be financing in addition to the maximum loan allowed or paid in one lump sum at the time of closing.  In addition to the upfront mortgage insurance is a monthly mortgage insurance premium of .55% of the loan amount, too.  Here is an example of an FHA mortgage:

$200,000 Purchase Price

97.15% Max Loan Amount = $194,300

1.75% Upfront Mortgage Insurance Premium = $3,400.25

Loan Amount with Upfront Mortgage Insurance Preium = $197,700 (loan amounts can not include cents)

.55% monthly mortgage insurance = $1,068.65/yr = $89.05/mo

VA provides veterans and current active military with VA benefits to purchase homes with 100% maximum loan to value limits.  In other words, you can purchase a $200,000 home with a $200,000 VA mortgage.  VA does have the equivalent of FHA’s upfront mortgage insurance, called a funding fee which varies based on your level of military involvement (active duty, reserves, etc) and whether your VA mortgage benefit has been used in the past and can be financed as it is with FHA.  VA does not, however, have a monthly mortgage insurance which helps in keeping the payments low.  Here is an example of a VA mortgage:

$200,000 Purchase Price

100% Max Loan Amount = $200,000

2.4% Funding Fee (based on National Guard) = $4,800

Loan Amount including funding fee = $204,800

Both of these government mortgage options are great low down payment options with lenient underwriting requirements, meaning it is easier to get approved with one of these mortgage options as compared to traditional conventional mortgages.  Check with your lender to see if they offer these options.  If they say you don;t qualify, make sure you understand why.  Some mortgage lenders don’t want to lose your business because THEY are unable to do these government loans so they say YOU don’t qualify.  Make sure you know your options and/or limitations.

Scott