Government loan programs - Midwest Funding Bancorp

Government loan programs

FHA loans

An FHA loan is insured by the Federal Housing Administration, a federal agency within the U.S. Department of Housing and Urban Development (HUD). The FHA does not loan money to borrowers, rather, it provides lenders protection through mortgage insurance (MIP) in case the borrower defaults on his or her loan obligations. Available to all buyers, FHA loan programs are designed to help creditworthy low-income and moderate-income families who do not meet requirements for conventional loans.

FHA loan programs are particularly beneficial to those buyers with less available cash. The rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans.

Some of the other benefits of FHA financing:

Only a 3 percent down payment is required.
Closing costs can be financed.
Lower monthly mortgage insurance premiums and, under certain conditions, automatic cancellation of the premium.
More flexible underwriting criteria than conventional loans
FHA limits the amount lenders can charge for some closing cost fees (e.g. the origination fee can be no more than 1% of mortgage).
Loans are assumable to qualified buyers.

VA Loans

VA guaranteed loans are made by lenders and guaranteed by the U.S. Department of Veteran Affairs (VA) to eligible veterans for the purchase of a home. The guaranty means the lender is protected against loss if you fail to repay the loan. In most cases, no down payment is required on a VA guaranteed loan and the borrower usually receives a lower interest rate than is ordinarily available with other loans.

Other benefits of a VA loan include:

Negotiable interest rates.
Closing costs are comparable and sometimes lower - than other financing types.
No private mortgage insurance requirement.
Right to prepay loan without penalties
The Mortgage can be taken over (or assumed) by the buyer when a home is sold.
Counseling and assistance available to veteran borrowers having financial difficulty or facing default on their loan.

Although mortgage insurance is not required, the VA charges a funding fee to issue a guarantee to a lender against borrower default on a mortgage. The fee may be paid in cash by the buyer or seller, or it may be financed in the loan amount.

A VA loan can be used to buy a home, build a home and even improve a home with energy-saving features such as solar or heating/cooling systems, water heaters, insulation, weather-stripping/caulking, storm windows/doors or other energy efficient improvements approved by the lender and VA.

Veterans can apply for a VA loan with any mortgage lender that participates in the VA home loan program. A Certificate of Eligibility from the VA must be presented to the lender to qualify for the loan.

Cash out FHA on properties owned more than one year prior to the FHA refinance are permitted on owner occupied principal residences only, and are limited to 85% of the appraised value up to a base loan amount of $417,000. If the base loan amount (loan amount prior to adding the MIP premium) is greater than $417,000, then the maximum loan to value is limited to 85% and will require a second appraisal.

A cash-out FHA refinance loan is when a borrower refinances their current mortgage for more than they owe in order to pull out the built up equity that has accrued in the home. The amount a home owner can borrower is limited by the value of the property compared to the loan amount (otherwise known as the loan-to-value or LTV).

The following are basic requirements of a cash-out FHA refinance home loan:

Borrowers who are delinquent or in arrears under the terms and conditions of their current mortgage(s) are not eligible for a cash-out FHA refinance.

The subject property must have been owned by the borrower as his or her principal residence for at least 12 months preceding the date of the loan application. If the borrower has not owned the the property for a minimum of 12 months, the FHA refinanced insured new mortgage is capped at 85 percent LTV. In such cases, the FHA mortgage amount must be calculated using the lesser of the appraised value or the original sales price of the property multiplied by 85%. However, a sales price need not be considered if the property was acquired as the result of inheritance and is or will become the heir’s principal residence

If said property is encumbered by a mortgage, the borrower must have made all of his/her mortgage payments within the month due for the previous 12 months, i.e., no payment may have been more than 30 days late and is current for the month due.

Applies to owner occupied properties only.

The property that is security for the FHA refinance, must be a 1- or 2-unit dwelling.

Loan amounts may not exceed the maximum loan limits for the area.

Subordinate financing may remain in place, but subordinate to the FHA refinanced insured first mortgage, regardless of the total indebtedness or combined loan-to-value ratio, provided the homeowner qualifies for making scheduled payments on all liens.

All borrowers must credit qualify.

Any co-borrower or co-signer being added to the note must be an occupant of the property. Non-occupant owners may not be added in order to meet FHA's credit underwriting guidelines for the mortgage.

If a homeowner is pursuing a cash-out FHA refinance and the loan balance exclusive of FHA’s upfront mortgage insurance premium will exceed $417,000, the loan-to-value may not exceed 85 percent of the appraiser’s estimate of value.

Apply Now For Your FHA Or VA Loan Now!