Are Government Mortgage Loans Better Than Independent Offerings?

If you are wondering whether government mortgage loans or standard loans are better for you, the answer to this question really lies in the details of the person looking to borrow. Government mortgage programs, such as FHA loans and VA loans, don'tactually loanany money to prospective borrowers, they simply guarantee the loan through a federally backed loan program. This is a common misconception among borrowers that a government loan program includes a loan being given by the government at a lower rate or without interest. This simply isn't true. The loan rate, as a matter of fact, is determined by the specific lender you choose, so you have to shop around for the best loan rate you can find in a federally guaranteed loan just the same as you would if you were to borrow from a conventional lender. The only guarantee the government program gives is to the lender, so the lender doesn't take the risk in giving you the loan. This makes it easier for you to obtain the loan.

Government Mortgage Loans Versus Private Loans

• When you choose an FHA loan, you may not be required to pay any closing costs at the time of the contract signing, but they may be applied to the loan balance and paid off over the course of the loan. Through any conventional lender, the closing costs are usually to be paid immediately at the signing of the loan contract (although occasionally you can roll them into the mortgage).

• When get an FHA, Freddie Mac, or Fannie Mae guaranteed loan, you may not be required to pay more than 1 to 3 percent of the total loan as a down payment, whereas a conventional lender generally requires as much as 20 percent, depending on the specific lender you contact.

• Another FHA loan that may not be offered through most conventional lenders is the Energy-Efficiency loan, which will finance for updates to a property that make the property more energy efficient. Items such as furnaces, water heaters, laundry machines and even solar paneling may allow for additional financing through an FHA loan.

The Difference in Loan Rates

As stated above, FHA loan rates are determined by specific lenders, not by the government. Because of this, anyone considering an FHA loan should contact as many FHA lenders as they can in order to find the lowest loan rate possible.

Getting Help

If you are applying for a mortgage, you should consider what FHA or other government backed loans can do for you. You may also wish to consult with an experienced real estate attorney who can help you understand your financing options and your legal rights and requirements when it comes to financing your home.