How they work: The Federal Housing Administration does not lend money. It insures mortgages.
The FHA allows borrowers to spend up to 56 percent or 57 percent of their income on monthly debt obligations, such as mortgage, credit cards, student loans and car loans. In contrast, conventional mortgage guidelines tend to cap debt-to-income ratios at around 43 percent.
For many FHA borrowers, the minimum down payment is 3.5 percent. Borrowers can qualify for FHA loans with credit scores of 580 and even lower.
Cost: Each FHA loan has 2 mortgage insurance premiums:
- An upfront premium of 1.75 percent of the loan amount, paid at closing.
- An annual premium that varies. Most FHA homebuyers get 30-year mortgages with down payments of less than 5 percent. Their premium is 0.6 percent of the loan amount per year, or $50 a month for a $100,000 loan.
What's good: FHA loans are often the only option for borrowers with high debt-to-income ratios and low credit scores.
What's not as good: To get rid of FHA premiums, you must refinance the loan.
Who they're for: Most active-duty military and veterans qualify for Veterans Affairs mortgages. Many reservists and National Guard members are eligible. Spouses of military members who died while on active duty or as a result of a service-connected disability may also apply.
Read up on VA loans.
How they work: No down payment is required from qualified borrowers buying primary residences. The VA does not lend money but guarantees loans made by private lenders.
Cost: The VA charges an upfront VA funding fee, which can be rolled into the loan or paid by the seller. The funding fee varies from 1.25% to 3.3% of the loan amount.
The VA allows sellers to pay closing costs but doesn't require them to. So the buyer might need money for closing costs. Borrowers may also need money for the earnest-money deposit.
What's good: VA borrowers can qualify for 100% financing. Veterans do not have to be first-time buyers and may reuse their benefit.
What's not as good: According to the VA, there isn't a cap on the amount you can borrow. "However, there are limits on the amount of liability VA can assume, which usually affects the amount of money an institution will lend you. The loan limits are the amount a qualified Veteran with full entitlement may be able to borrow without making a down payment. These loan limits vary by county, since the value of a house depends in part on its location."
RATE SEARCH: Comparison shop for a VA loan today.