What are government backed loans?
Government backed loans fall into three categories: Federal Housing Administration (FHA), Department of Veteran Affairs (VA), and United States Department of Agriculture (USDA).
FHA home loans are insured by the Federal housing administration. These loans have allowed lower-income Americans, that normally would not qualify for a mortgage, to buy a home. Down payment can be as low as 3.5%. These loans have Mortgage Insurance (MI) for the life of the loan.
VA home loans are for veterans of our U.S. Armed Forces. These loans are for helping active military members, veterans, and eligible surviving spouses in buying a home. These loans can cover 100% of the loan and have very lenient guidelines and credit requirements. VA loans have no MI, but do charge an upfront guaranty fee that can be financed into the loan amount.
USDA home loans for rural housing are guaranteed by the federal government and funded by banks. They offer a $0 down financing for persons that qualify. A big misconception is that these loans are only for rural areas. Many “rural” areas are actually urban for all practical matters. USDA has an annual Guarantee Fee (a kind of MI) that is much lower than the FHA MI.
What are conventional loans?
Mortgages that are not backed by any government agency backed mortgages are referred to as conventional loans. Rates for these loans are higher than government backed loans but have easier guidelines. For persons with high credit scores and large down-payments, these loans offer a better alternative. There is no MI once the Loan To Value (LTV) of the property is over 20%.
What are non-traditional loans?
For persons that do not qualify for government backed loans or conventional loans, lenders have created several alternatives. Such as no tax return loans, recent bankruptcy or short-sale, and even investor loans that only use the properties rent income to qualify. These programs are constantly changing as new lenders offer more products.