A WHILE AGO, WE STARTED A 4-PART BLOG COVERING THE BASIC MORTGAGE CATEGORIES MOST WIDELY USED IN HOME FINANCING. LAST TIME, WE DISCUSSED THE ‘CONVENTIONAL’ MORTGAGE ALONG WITH IT’S MOST NOTABLE USES AND QUALITIES. TODAY WE’RE COVERING THE ‘GOVERNMENT’ MORTGAGE CATEGORY.
Just like conventional mortgages, government mortgages can be divided into many subcategories. But the basic difference is that rather than a private firm taking on the risk of default in the form of mortgage insurance (PMI), it’s the federal and/or state government that provides the lender with mortgage insurance against a borrower’s default. Additionally, certain governmental departments such as HUD, FHA, and VA play a heavy role in defining the rules and regulations as opposed to banks and investment firms.
MORTGAGE PROGRAM #2: THE GOVERNMENT MORTGAGE
A Government Mortgage is broadly defined as a mortgage that possesses the following qualities:
- Down payment requirements that go as low as ZERO down** Ask us! **
- Regardless of how much you put down, mortgage insurance is typically required and the federal government is on the hook if you default. ** Ask us about the one government loan that DOES NOT require mortgage insurance! **
- Generally requires that you must wait 3 years from the date of a Foreclosure
- Generally requires that you must wait 3 years from the date of a Short Sale. BUT in some cases, you may not have to wait at all!
- Generally requires that you must wait 2 years from the date of a Bankruptcy
- Generally requires credit scores greater than or equal to 550
- Generally limits the mortgage payment plus your current monthly consumer debt to 55% or less of your gross monthly income. Some exceptions are granted
- Generally more lenient with delinquencies (lender willing to take more risks)
- Generally more “Red Tape”
- Requires that taxes and insurance be included in your monthly payment
- Typically requires both up-front and monthly mortgage insurance that is financed into the loan
- Generally requires mortgage insurance for the life of the loan unless a shorter pay-back period is chosen ** rule changes from time to time **
Additionally, some of the subcategories of the government mortgage are as follows:
- Adjustable rate options
- First and second mortgage combinations
- Remodel solutions
- “Underwater” value
- Manufactured homes
While these parameters of course don’t cover every aspect of a government mortgage, they provide a good start in understanding some of the basic guidelines. Stay tuned!
Next time we’ll discuss ‘Alternative/Non-Prime’ financing which is an outstanding tool for helping anyone who doesn’t qualify for Conventional or Government financing.