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Federal Housing Administration (FHA) Mortgages - The FHA was established by the federal government in 1937 to make home ownership possible for more people and to administer the home loan insurance program. It was consolidated into the Department of Housing and Urban Development (HUD) in 1965. Among its other responsibilities, the FHA sets credit standards and loan limits, monitors loan quality and availability, and insures lenders against mortgage losses. That insurance, for which borrowers pay a mortgage insurance premium, encourages qualifying lenders to make FHA loans. It's important to repeat that FHA does not provide the loan, it just insures the mortgage for FHA approved lenders.

While FHA mortgages resemble conventional mortgages, there are some significant differences. The buyer's closing costs are limited, the required down payment is much lower (usually 3 to 5%), and people who may not qualify for a conventional mortgage because of previous credit problems may qualify for an FHA loan. Further, these mortgages are assumable, which means a new buyer can take over the payments without having to secure a new loan.

There is a price ceiling on the amount a homebuyer can borrow with an FHA mortgage, based on the state and county where the property is located. There are also some expenses, including required mortgage insurance, that the borrower must pay. There is extra paperwork and extra appraisal processing time associated with this type of loan. In a good home selling market, where a seller mat expect several buyers, sellers may be reluctant to deal with purchasers that are using this type of financing. For information on FHA loan and other Housing and Urban Development (HUD) programs visit the HUD web site at http://www.hud.gov/

Veterans Administration (VA) Mortgage - These loans are made by a lender, such as a mortgage company, savings and loan or bank. VA's guaranty on the loan protects the lender against loss if the payments are not made, and is intended to encourage lenders to offer veterans loans with more favorable terms like 100% financing (0 down payment). The amount of guaranty on the loan depends on the loan amount and whether the veteran used some entitlement previously. With the current maximum guaranty, a veteran who hasn't previously used the benefit may be able to obtain a VA loan up to $240,000 depending on the borrower's income level and the appraised value of the property. The local VA office can provide more details on guaranty and entitlement amounts.

If you are doing a VA (Veterans Administration) Approved Mortgage you need to have the following paperwork completed: A certified copy of your DD Form 214 "Certificate Of Release Or Discharge From Active Duty". Within about 3 weeks VA will send you Form 26-8329 (CG) "Certificate Of Elegibility For Loan Guaranty Benefits". For more information about this government program visit the VA Home Loan site at http://www.homeloans.va.gov/

Do you eligible for a VA loan?
Veterans who served on active duty and were discharged under conditions other than dishonorable, during World War II and later periods are eligible for VA loan benefits. World War II (September 16, 1940 to July 25, 1947), Korean conflict (June 27, 1950 to January 31, 1955), and Vietnam era (August 5, 1964 to May 7, 1975) veterans must have at least 90 days' service. Veterans with service only during peacetime periods and active duty military personnel must have had more than 180 days' active service. Veterans of enlisted service which began after September 7, 1980, or officers with service beginning after October 16, 1981, must in most cases have served at least 2 years.

Persian Gulf Conflict. Basically, reservists and National Guard members who were activated on or after August 2, 1990, served at least 90 days and were discharged honorably are eligible. VA regional office personnel may assist with eligibility questions.

Members of the Selected Reserve, including National Guard, who are not otherwise eligible and who have completed 6 years of service and have been honorably discharged or have completed 6 years of service and are still serving may be eligible. The expanded eligibility for Reserves and National Guard individuals will expire September 30, 2003. Contact the local VA office to find out what is needed to establish eligibility. Reservists will pay a slightly higher funding fee than regular veterans. (See paragraph entitled "Costs of Obtaining a VA Loan").

Risks of cosigning for a loan:
Buying a home is increasingly expensive. Even at today's extremely low rates, you may not qualify for a mortgage unless you can get someone (a friend or a relative) to cosign for a loan. This concept can also be used in renting an apartment, buying a car, or getting your first credit card. Cosigning a loan means that you are guaranteeing the debt of the borrower. So, if you are going to get a cosigner, make sure you can pay for the loan. Otherwise, your friend or a family member who cosigned for the loan will be responsible for your debt.

Most people don't realize that cosigning for a loan makes them entirely responsible for paying off the debt if the borrower can't. If you cosign for a home purchase, your name will go on the title as an owner of the property. Your credit report will also list the mortgage as a debt, and if the borrower gets into financial trouble, the lender could and come after everything you own. So think twice before YOU cosign a loan for a friend or a relative.

Consider these four things BEFORE you consign for a loan:
1. Remember that you are being asked to guarantee this debt. Think carefully before you do. If the borrower does not pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.
2. You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.
3. The creditor can collect this debt from you without first trying to collect from the borrower but some state laws forbid a creditor from collecting from a cosigner without first trying to collect from the borrower.
4. The lender can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of your credit record.

What is seller financing?

Seller financing is when a seller helps to finance a real estate transaction by taking back a mortgage. It is usually in the form of a 2nd mortgage and is used in conjunction with a standard 1st mortgage. For example when you need 20% to put down on a house and you only have 10%. The seller can finance the remaining 10%. If you are lucky, seller may even finance the entire purchase if the seller owns the home free and clear. By using seller financing to bring you over the 20% down payment level, you save money by not being required to purchase PMI.

Seller financing differs from a traditional loan because the seller does not give the buyer cash to complete the purchase, as does a lender. Instead, it involves extending a credit against the purchase price of the home while the buyer executes a promissory note and trust deed in the seller's favor. These special circumstances must be acceptable to the lender who makes the first mortgage on the property. Some lenders do not allow additional down payment dollars to come from family or other lenders.

The necessary paperwork is prepared by the title or escrow company after the terms are worked out between the buyer and seller. It's a great way to get a mortgage without a lengthy qualifying process, little or no fees, and possibly lower APR than traditional mortgages.

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