Mortgage Loan Programs

Most mortgage loans are conventional loans, which mean that the loans are issued by lending institutions directly to the borrower. A typical conventional mortgage usually requires a 20% down payment.

But there are some loan programs out there that make it easier for potential homebuyers, especially first-time home buyers, to get a home without the hefty down payment requirements. There are three main loan programs out there:

• FHA Loan programs

• VA Loan programs

• RHS Loan programs

Each of these programs has different requirements. Here is a description of each program and what you need in order to qualify for them:

FHA Loan Programs

FHA stands for Federal Housing Authority, which is part of the U.S. Department of Housing and Urban Development (HUD). FHA loan programs are sponsored by the FHA. These loans make it easier to get a home because of its looser down payment restrictions. To qualify for an FHA loan your:

• Mortgage payment cannot exceed 29% of your gross income

• Total debt should not exceed 41% of your income

Some of the advantages to FHA loans are:

• Can be a fixed-rate loan or an ARM

• Down payments of 5 percent or less

• Interest rates up to 1 percent less than market

• No prepayment penalty

• The loan is assumable

• Closing costs can be rolled into the loan

But there are some restrictions on FHA loans. These restrictions include:

• Limits on the amount you can borrow ($219,849 in high-cost areas and up to $121,296 in all others)

• Buyers must pay mortgage insurance. This is called MIP. It is added to your payment every month and does not go towards interest or principal. This MIP can be removed if you build up a 20% equity in your home.

VA Loans

VA stands for veterans affairs, as in the U.S. Department of Veterans Affairs. These loans are guaranteed by the VA. But not everyone is eligible for a VA loan. Those who can get one are:

• Veterans of the Armed Services who obtain a certificate of eligibility from the VA (this usually means that you must have been honorably discharged)

• Reservists (under certain conditions)

Features of VA loans make it quite easy for someone to get into a home. These features are:

• Can be a fixed-rate loan or an ARM

• No down payment

• No prepayment penalty

• The loan is assumable

The fact that VA loans do not require down payments makes it easier for many people to get into homes. Unlike an FHA loan, a VA loan allows you to finance 100%. While VA loans are currently limited to $203,000, the limits tend to rise every year.

RHS Loan Programs

RHS stands for Rural Housing Service. The Rural Housing Service is part of the U.S Department of Agriculture. RHS loan programs are for people of low to middle income that want to buy rural property. People who are interested in an RHS-guaranteed loan must meet certain employment, income and credit requirements. Some of the features of RHS loans are:

• Can only get a conventional fixed-rate loan

• Property in question must be designated by the USDA as rural land

• Closing costs and repairs can be rolled into the loan as long as it doesn't exceed the value of the home

These are the three main special loan programs. If you apply for any of these just remember that due to the restrictions of each, they can take longer to get approval and they require more documentation.

Other Special Loan Programs

There are other loan programs out there. Many of these other special loan programs are offered by Freddie Mac or Fannie Mae. Also, many states offer programs for first-time home buyers. Check with your local bank or mortgage broker to get details about any other special loan programs.