January 25, 2013
A reader asks, “What is the difference between an FHA loan and a loan from a credit union?”
FHA loans differ from other types of loans for many reasons. Conventional mortgages, for example, often require much higher down payments and credit score requirements for conventional lenders. When it comes to credit unions, there may be many differences or similarities depending on which lender you’ve compared the FHA terms and conditions with.
It’s not possible to say across the board how FHA loans may vary–credit unions are all different–but a quick look at some terms and conditions of individual credit unions can be revealing.
For example, some credit unions we looked at offered qualified first time home buyers conventional loans with low down payments but did not offer at or near 100% LTV, unlike many FHA loan products for single-family homes. FHA loans are offered at 96.5% LTV and require a 3.5% minimum down payment, Credit union mortgage loan down payment rules will vary from lender to lender. Some credit unions offered conventional loans at 80% LTV, while others offered conventional loans at at 95% LTV.
What’s the major difference between an FHA guaranteed loan and a home loan issued by a credit union? In general terms, the program structure. Credit unions are described by some as “member owned” financial cooperatives. The FHA loan program is a government program that guarantees loans made by FHA-approved private lenders. The legal guidelines for FHA mortgages are consistent and do not vary in terms of program’s rules–some fees, interest rates and credit score requirements DO vary from lender to lender.
Basic FHA loan requirements include the following as found on FHA.gov:
- The borrower must meet standard FHA credit qualifications.
- The borrower is eligible for approximately 96.5% financing. The borrower is able to finance the upfront mortgage insurance premium into the mortgage. The borrower will also be responsible for paying an annual premium.
- Eligible properties are one-to-four unit structures.
FHA guaranteed mortgages are insured by the government, there is a built-in system of recourse and help for borrowers experiencing difficulties with their mortgages. There are FHA-approved housing counseling centers across the nation to help borrowers or soon-to-be borrowers work out financial issues, credit questions and other relevant issues. The credit union may or may not be a local entity–some may be nationwide, others may not. The FHA loan program is national, and government-backed.
The most important thing a borrower can do is make an informed decision about their home loan. Compare FHA loan terms and conditions with those of the credit union you’re thinking of and see how they both stack up. You may find FHA mortgages work in your favor in many areas.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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