Home Mortgages

Getting a loan to purchase a home is not particularly difficult today. With the advent of automated underwriting, lenders can approve most loans in hours rather than weeks. However, understanding what loan program to choose can be a daunting task. In Virginia, loan programs can be broken down into the following five categories:

FHA Loans
VHDA Loan Program (1st time homebuyers)
VA Loan Program
Conventional Loans
Alternative Loan Programs

Federal Housing Authority (FHA) - These loans are backed by the government and typically offer homebuyers advantages in the amount of money they can borrow and leniency on credit. With an FHA loan, a homebuyer can qualify for a mortgage equal to not more than 29% of their gross montly income and a total monthly revolving debt of not more than 41% of their gross monthly income.

For example, if a homebuyer makes $1,000 per month, they would qualify for a monthly mortgage equal to $290 (29%) and their total revolving debt could not exceed $410. The 29% and 41% limits are guidelines and are not always set in stone, so if you think you do not exactly fit, please let a lender make the call. You might be pleasantly surprised.

The highlights of an FHA loan are as follows:

• No income limit
• Home price limit: $151,050
• Loan limits: 29%/41%
• Mortgage Insurance Premiums
• Down payment requirements: 3%
• Seller can pay some closing costs
• Can be assured by a qualified purchaser

An FHA mortgage will allow a purchaser to borrow slightly more money based on income and the Mortgage Insurance Premium (MIP) is slightly less than Private Mortgage Insurance (PMI) on a similar-sized conventional plan.

Get used to the terms MIP and PMI. These types of insurance act as a policy for the lender insuring the top 20% of the loan. In a conventional loan, PMI covers the difference between the homebuyer's equity and 20%. For example, if a purchaser buys a $100,000 home and puts down $10,000 (or 10%), the purchaser would be required to carry PMI for 10% of the loan (or $10,000).

PMI can be removed when a homeowner reaches 20% equity. MIP is for the life of the loan. Most homeowners have found removing PMI is not particularly easy. Usually refinancing is the best way to remove PMI.

PMI and MIP have made it possible for buyers with less than 20% down payment to purchase homes. There are also new loan programs available that can circumvent the need for PMI in a conventional loan.