The Top 3 Loan Programs Compared: Conventional, FHA, and VA Mortgages
09/16/2010 Three of the most common types of mortgage are the conventional mortgage, the FHA mortgage, and the VA home loan. All of these mortgage types are useful and beneficial in various ways, but how do they compare? Which is best for you? In some cases, the answer is simple. In others, it's not so clear. An analysis of these three mortgage types will help you decide which is right for you.
Conventional Mortgages
Conventional loans are the most common loans used to purchase or refinance homes. Guidelines are not too tight, especially with regard to appraisals and inspections, but you'll need a high credit score to qualify for decent rates and you'll have to be ready to supply a significant down payment. If you're not able to pay at least 20% of the home price with the down payment, you'll be required to take out mortgage insurance, which is particularly expensive on a conventional loan. Because of this high down payment requirement, conventional loans have fallen out of favor somewhat in recent years as the economic downturn has cut into the cash reserves of potential homebuyers.
FHA Mortgages
An FHA home loan allows an individual with a low credit score to fund a home purchase. FHA home loans are also uniquely designed to accommodate first time home buyers. FHA mortgages require very small down payments of only 3.5% of the total purchase price amount. Mortgage insurance is cheaper for FHA mortgages than conventional loans. Those are the benefits of an FHA mortgage—low credit requirements, first time homebuyer availability, 3.5% down payment, and cheaper mortgage insurance. FHA mortgages aren't available to everyone, however. Check to ensure that you're qualified before setting your hopes on an FHA mortgage.
VA Home Loan
VA home loans are only available to veterans, but they come with the best terms. Veteran borrowers don't need to have great credit to apply for such a loan, but better credit will always help you take advantage of the lowest mortgage rates. Many VA mortgages don't require any down payment at all, and mortgage insurance is not required. Borrowers must pay a funding fee, which generally accounts for about 3% of the purchase price, but this is minor. Seller concessions are allowed to cover this, however, which enables some veterans to take out mortgages without paying more than a few administrative fees. VA loans are true no-money-down loans, and they come with great terms attached.
