Alternatives to FHA Financing

If you are a currently serving or honorably discharged member of the U.S. Army, Air Force, Marine Corps, Navy or Coast Guard you may apply for a VA loan, which is insured by the Department of Veterans Affairs. Under some circumstances, you may qualify for 100 percent financing. Some reservists and members of the National Guard -- as well as some spouses of service members -- also may qualify for a VA loan.

Instead of getting a government-backed home loan, you can seek a traditional mortgage and insure it yourself. Private mortgage insurance may be purchased to protect the lender against the possibility that you will default on the loan. Normally this is required if you have a down payment of less than 20 percent. Once you have repaid 20 percent of your loan you can cancel the insurance because the lender will have sufficient collateral to secure your mortgage.

Some lenders claim to offer mortgages with down payments of less than 20 percent and without private mortgage insurance. These loans actually have mortgage insurance, but it is paid by the lender instead of you. Such lenders aren't just giving you a free ride. They will charge a higher interest rate for this service. The advantage, however, is that interest payments are tax-deductible, so you may be able to save money by choosing a higher interest payment over insurance payments.

If you have a good credit record and you can afford to make a down payment of 20 percent or more, you might be able to obtain an unsecured home loan. In this case your down payment serves as the guarantee that the lender needs against the risk of default. This can be expensive up front, but the payment goes toward your mortgage and it means not paying separate insurance premiums.