Mobile, Alabama, the county seat of Mobile County, is Alabama’s only saltwater port and the hub of its economic engine. The Port of Mobile was originally an important trading post between the French who colonized the region and the local Native Americans. Today, it’s the 12th largest port in all of the United States. With a population of just under 200,000, Mobile is considered one of the Gulf Coast’s cultural centers with multiple museums, a symphony orchestra, opera and ballet company all calling it home.
The major contributors to the economy include aerospace, shipbuilding, steel, and manufacturing. This variety provides multiple employment opportunities. Real estate values in Mobile are a bit lower than the national median value. The national median value today is around $215,000. In Mobile, the median home value is closer to $115,000. This lower median value makes it easier for first-time buyers to qualify for a home. For instance, if someone wants an FHA mortgage and the sales price of the home is $100,000 the down payment is $3,500, or 3.5% of the sales price. The VA loan is also an option and this program requires $0 down payment. Let’s take a close look at these two programs and see the advantages of each and why first time buyers need to consider both.
Let’s first explore the VA mortgage. This program goes all the way back to 1944 as part of the Servicemen’s Readjustment Act of 1944. Typically referred to as the “G.I. Bill” this package enacted by Congress was designed to help soldiers more easily assimilate back into civilian life. There were different assistance programs ranging from education in a college or trade school, loans to help start a business. Yet the part of the G.I. Bill that has had the most impact is the VA home loan benefit.
The VA loan requires no down payment and provides 100% financing. The only other program that provides this 100% option is the USDA loan, designed to finance homes in more rural locations just outside of Mobile. This no down payment feature gets first-time buyers into a home without the need for saving up money for a large down payment.
Another advantage of the VA loan is certain restrictions VA places on the types of closing costs the veteran is allowed to pay. Veterans can pay for an appraisal, credit report, title, origination fees, recording and a survey where needed. Other common closing fees such as an attorney, underwriting or escrow charges are off limits. These fees must be paid for by third parties such as the sellers of the property or by the lender who can provide a closing cost credit at the closing table by adjusting the interest rate on the loan. VA also permits higher loan amount limits, currently $484,350 in Alabama. FHA is limited to $314,827 loan amounts.
VA loans also carry a loan guarantee to the lender in case of default. The loan guarantee is paid for in the form on a Funding Fee. This fee will vary based upon how many times the borrower uses the VA loan to buy a home, borrower status, and the loan term. For a traditional 30 year fixed rate, zero down loan, the funding fee is 2.15% of the loan amount. With a $100,000 loan in Mobile, Alabama, the funding fee is $2,150 but is not an out of pocket expense. This fee is included in the final loan amount. Using this example, the final loan is $102,150 and is the amount upon which the monthly payments are based. And speaking of monthly payments, unlike other low down payment mortgages, the VA loan does not require an additional monthly mortgage insurance payment or PMI.
While the VA loan is only available to veterans, active duty personnel with 181 days of service, National Guard and Armed Forces Reserve members with at least six years of service and un-remarried surviving spouses of those who died while serving or as a result of a service-related injury, the FHA loan has no such restrictions.
The FHA loan was introduced in 1934 as a way to help the economy recover from the Great Depression. The FHA loan is not a loan in and of itself but more of an insurance program. When a lender approves a loan using FHA guidelines, should the loan go into default, the FHA compensates the lender at 100% of the loss. The insurance is paid for with both an upfront mortgage insurance policy rolled into the loan amount, just like the VA loan, and an annual premium paid in monthly installments by the borrowers. The down payment for an FHA loan is just 3.5% and one of the reasons first time buyers prefer this loan program over other choices.
Both the VA and FHA loan require less cash to close than most other mortgage programs and both have very competitive mortgage rates and are widely available. So, if someone has a choice to make, which one is better for the first time home buyer?
When you consider the fact that the VA loan does not need a down payment which means less cash to close compared to the FHA loan, the VA loan gets the nod. In addition, the overall monthly payment for a VA loan will be slightly lower compared to the FHA program because there is no monthly mortgage insurance payment for VA like there is with the FHA mortgage. Closing costs are also limited with the VA program. If someone is eligible for the VA loan and low cash to close is a requirement, the VA loan is the better choice.
However, if someone is not eligible for the VA loan, the FHA is a solid second choice. Easier qualifying, low down payment and competitive interest rates. To learn more, please call 7 days a week, or just submit the Info Request Form found on this page.