Alphabet Soup of FHA and VA Loan Terms
What do you get when you cross the banking world with government programs? You guessed it – a veritable alphabet soup of acronyms to digest.
If you are thinking about obtaining a loan backed by the U.S. Department of Veterans Affairs (VA) or the Federal Housing Administration (FHA), you’ll want to be familiar with several terms specific to each of these loan programs.
203(k) loan – an FHA loan made to homebuyers who want to buy a damaged or older home and do repairs. Loan includes the purchase price plus the amount estimated to make the repairs. There are limitations on the kinds of improvements that can be included in a 203(k) loan.
Annual Mortgage Insurance Premium (MIP) – monthly fee figured into FHA mortgage payments based on a borrower's loan-to-value (LTV) ratio, loan size, and length of loan. Unlike the upfront premium described below, MIP is paid monthly for the full term of the loan.
Basic Allowance for Housing (BAH) – a non-taxable, monthly payment given to active duty military service members when government housing is not available. The BAH provides a VA lender with an easy-to-measure proof of the borrower’s ability to pay a mortgage. While the BAH isn’t specifically designed to help military members pay a mortgage, it is an important military benefit for anyone considering taking a VA loan.
Certificate of Eligibility (COE) – a document issued by the federal government certifying a veteran’s eligibility for a VA loan.
Certificate of Reasonable Value (CRV) – a document issued by the VA establishing the maximum value and loan amount for VA home loan.
DD-214 –a document issued by the U.S. Department of Defense upon a service member’s retirement, separation, or discharge from active-duty military service. Formal name is the Certificate of Release of Discharge from Active Duty.
Energy Efficient Mortgage (EEM) – a loan product that allows borrowers to finance energy efficient improvements into a home purchase or refinancing of an existing home. All mortgage programs insured by the federal government, including FHA and VA insured home loans, currently sponsor EEMs.
Interest Rate Reduction Refinance Loan (IRRRL) – a no frills refinance program sponsored by the VA that allows borrowers to lower their interest rate by refinancing an existing VA home loan.
Minimum Property Requirements (MPR) – a standard established by the Housing and Urban Development (HUD) to set minimum criteria that FHA-insured mortgage properties must meet.
Residual Income – a method used for VA loans to calculate the amount of income remaining each month after standard living expenses are paid. This figure, adjusted family size and region, helps to determine if the borrower has the means to make regular mortgage payments.
Upfront premiums – a one-time FHA loan mortgage insurance payment, usually 1.75% of the home loan, paid when the loan is made or financed into the mortgage. These fees go into an escrow account set up by the U.S. Treasury Department to help pay for the program.
Of course, these are just a few of the new terms you may run into when you buy a home. You can also visit our mortgage glossary to get familiar with a variety of other mortgage and financial services terms.
Let Lincoln Savings Bank help you find your next home with confidence, knowing you are ready to buy when the right home appears. You can begin our online mortgage process in just a few minutes by completing the short mortgage form at the VA Loan Launchpad or the FHA Loan Launchpad.
If you prefer personal assistance rather than online help, you can contact us at one of our many Iowa locations and one of our mortgage experts will be happy to answer your questions.
Lincoln Savings Bank, Member FDIC.
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