Five Myths About VA and FHA Loans
Although government insured mortgages, including FHA and VA loans, have been around a long time (or perhaps because of it), there are many myths about how tough these loans are to get. Before you decide it’s too much hassle to apply for a government backed home loan, it’s important to get all the facts. In today’s article, we’ll look at some of the most common myths about government home loans.
Myth #1 - Government loans take longer to close than conventional loans. This may have been accurate at one time but it’s just not true anymore. Both the VA and the FHA have streamlined their processes and adopted new technology, making their loan closing days similar to conventional loans. Loan processor Ellie Mae confirms this data as part of their regular reports comparing FHA, conventional, and VA loans performance. For instance, in February 2015 their report showed the average number of days it took to close on a home purchase was nearly identical for FHA, conventional, and VA loans.
Myth #2 – Home loans insured by the VA or FHA have higher interest rates than conventional loans. The VA and FHA do not actually issue mortgage loans and they don’t set the interest rate. Their primary role is to insure the lender against loss in case the borrower defaults. Many times, with this extra guaranty, banks are actually more likely to offer better rates due to the reduced risk. In fact, in the same report from Ellie Mae, average interest rates in February 2015 for VA and FHA loans were slightly lower than conventional loans.
Myth #3 – Government loan programs are only for first time homebuyers and/or low income families. VA loans are a benefit earned by any eligible veteran or active military service member and can be used multiple times, as long as the previous mortgage is paid. Similarly, there are no income requirements for FHA loans. You won’t be able to buy a mansion with an FHA loan because there are FHA loan limits, but you won’t be denied because your income is too high.
Myth #4 – You must wait 7 years after a bankruptcy to get a government home loan. Of course, no lender will take a bankruptcy on your record lightly but neither the VA nor the FHA will automatically deny a mortgage due to a bankruptcy for seven years. In many cases, you may only have to wait two years before you can qualify, providing you meet some other requirements.
Myth #5 – You can only purchase a single family dwelling with a government loan. Many types of properties may be purchased with VA and FHA insured mortgages, including apartments, townhomes, condominiums and in certain cases, multi-family units. Keep in mind that in the case of a multi-family unit, one of the units must be your primary residence.
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.