There are three types of Loan Programs offered by mortgage banks: FHA, VA, and Conventional.
The Federal Housing Administration (FHA) is a federal government agency and its main purpose is to insure private loans that are issued for new and existing housing, and loans that are approved for home repairs. Because these loans are guaranteed, banks will usually offer the home buyer lower, more affordable rates. Limit for FHA loans varies depending the location of the property for sale. Currently, an FHA loan requires a 3% down payment minimum to obtain the home loan.
Veterans Administration (VA) Loans are government backed loans for qualifying veterans who have served or who are serving in the United States military, and for qualified reservists. The program does not require a down payment and it has a loan limit for 2008 of $417,000. Veterans have to pay a fee for a VA home loan. This fee enables the veteran who obtains a VA home loan to contribute toward the cost of this benefit, and thereby reduces taxpayers' cost.
Conventional loans are mortgages not guaranteed or insured by the VA or the FHA. Conventional loans generally require larger down payments than government backed loans. Loans with greater than an 80 percent loan-to-value ratio will require the borrower to purchase Private Mortgage Insurance (PMI). If a borrower has difficulty obtaining PMI, the lender may insure the loan, increasing the interest rate of the loan to compensate for its greater risk. Interest rates are set by each lender and can exceed those of FHA and VA loans.
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