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These are both unconventional mortgage loans available in the industry. For all practical purposes FHA and VA loans often turn out to be better deals than the conventional loans; particularly because, these loans are guaranteed by Federal organizations, namely the Federal Housing Administration and Department of Veteran Affairs. They have a good deal of benefits over the conventional loans.
Federal Housing Administration and Department of Veteran Affairs work to make housing in America better and more affordable. Considered to conventional loans these loans are easier to qualify for, plus the interest rates are low and minimum down payment requirement is lower than usual.
FHA loans are good deals, especially for the first time home buyers: particularly, if you have not filed bankruptcy recently, and you are not in the sub prime credit rating zone. If you qualify for the FHA loan, the Federal Housing Administration insures your loan amount. This makes life easier for your lenders and brokers by reducing their risk factor. From their point of view, they are on safer grounds and do not need to worry about you defaulting on your loan.
Obviously, you will get better deals on your home loan. FHA insured loans can be withdrawn with a minimum down payment of 3%, compared to the 5% of the conventional loans. Plus, you would not have to buy private mortgage insurance, because FHA has already insured your loan. All in all it is a win-win situation for you and your lender.
If you have a good credit history, qualifying for an FHA loan for your first home mortgage become an easy task. The qualifying criterions for your FHA loan are also less stringent than the conventional mortgage eligibility criterions. The amount you pay towards monthly repayment must not be more than 29% of your monthly income. Again, your monthly payments plus your monthly debts must not go beyond 41% of your monthly income. This ensures that you have a comfortable income to expense ratio and will not (unless, in case of unforeseen financial situations) default.
The FHA was established in 1934 with the sole purpose of developing homeownership in America. FHA offers you several leeways to obtain a housing loan. So, even if you have faced bankruptcy or severe credit problems before it may be a good idea to check the FHA guidelines before you start looking for bad credit lenders.
FHA also helps current homeowners in restructuring or remodeling their house, in the form of FHA refinance and FHA home equity loans.
Applying for an FHA guaranteed loan is fairly easy. Once you have selected your property and settled on a lender, you would meet an FHA loan officer and go through the FHA approval process (mostly signing a few application forms).
You can browse through the Department of Housing and Urban Development Website for details on your FHA loans.
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