Government-backed mortgage programs such as FHA, VA, HERO and PACE offer some great home loan options! In today’s mortgage market they all play a vital role addressing specific borrowers as well as communities.
How it Started
The Federal Housing Administration (FHA) was created in 1934 as a way to help jump-start the economy by providing banks universal lending guidelines banks could follow. Should a bank approve a loan using these FHA guidelines and the loan went into default, the bank would be compensated for the loss. FHA loans also have a very low down payment requirement which today is at 3.5% of a property’s sales price. Prior to the introduction of the FHA program, banks could require down payments as high as 30% or even more which kept many away from homeownership.
FHA and VA Loans
The Veteran’s Administration oversees the original Servicemen’s Readjustment Act of 1944. This original G.I. Bill provided services to soldiers returning from WWII with business loans, education and mortgage loans. The VA mortgage requires zero money from the borrower and interest rates are extremely competitive. Other types of low down payment loans also require a monthly mortgage insurance payment while VA loans have no such requirement, keeping monthly payments more affordable. And as with the FHA program, the VA loan also compensates the lender should the loan go into foreclosure. This compensation is 25% of the loss. Both FHA and VA loans can only be used to finance a primary residence.
PACE Loan Program
PACE is the acronym for the Property Assessed Clean Energy program and is a locally managed program. PACE allows homeowners to finance certain energy-efficient improvements as well as water conservation projects. PACE is not a mortgage but is paid back as part of the homeowner’s property tax bill and a lien on the property is placed and will remain there until paid in full. Common improvements used with PACE are items such as improved insulation, caulking, energy upgrades and solar panels just to name a few. PACE liens are eligible to be used with both FHA and VA loans.
HERO Loan Program
HERO stands for the Homeowner’s Equity Recovery Opportunity loan program and is designed to help buyers finance properties in distressed areas and foreclosed homes in a bank’s inventory and is part of the original PACE program. HERO loans are underwritten using FHA guidelines so typical FHA requirements must be followed as it relates to credit, documenting income and assets as well as a minimum two-year history of employment. FHA loan limits also apply.
Find Out if You Qualify
FHA, VA, HERO and PACE all have different benefits, through HERO and PACE loan programs aren’t promoted very much and that’s really a shame as they both can provide homeowners with funds needed in order to make the property more “green” with the ultimate goal of creating a more sustainable, energy-efficient community.
If you’re thinking of making home improvements to reduce your overall energy footprint, you should speak with me about your options and get more details on how the programs work.