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Find out which mortgage is right for you: Conventional, FHA or VA loans

Conventional loans are the most popular type of mortgage loans available for all homebuyers .According to the U.S. Census Bureau, Conventional Loans made up around 73.8 percent of home sales in the first few months of 2018 which is considered to be the highest share in a decade. However, FHA loans ranked second making around 12 percent of all loans in Q1, followed by Veteran Affairs loan with just 8.7 percent in the last place. For borrowers having a good or excellent credit score, conventional mortgages are ideal. People with credit problems often get qualified for a conventional loan depending on the financial institution and the borrowers circumstances. Credit unions and independent banks having more personalized relationships with the customers bend Fannie Mac rules which are followed by most big banks.

PRO: Conventional mortgages take longer to process as they pose fewer hurdles than FHA or VA mortgages.

CON: People with excellent credit score qualify for the best interest rates.

Conventional loans are the best choice for you if:

  • You have an excellent credit score of at least 620; it will help you get low interest rates.
  • If you are buying a rental property, second home or you are planning to fix up an old property.
  • If you are eligible to pay a 20 percent down payment, you don’t need to pay PMI.

FHA Loans

Mortgages from the Federal Housing Administration have flexible loan lending standards from which you can benefit yourself. They are mainly suitable for:

  • Borrowers having low credit scores
  • Whose house payment is a big chunk of their take home salary
  • Home purchasers with small down payment
  • Refinancers having little equity

PRO: For borrowers having high debt-income ratios and low credit scores, FHA loans are then only option.

CON: You need to refinance the loan or pay it off to get rid of FHA loans.

FHA loans are your best choice if:

  • Your credit score is not perfect but it is at least 580 and you make 3.5% down payment of the purchase price. Or your credit score is 500-579 and you make a 10% down payment.
  • You are planning to live in the property
  • The buying price meets the FHA mortgage limits. Limits are $314,827 in majority of the country in 2019.

VA Loans

Down payment is not required from borrowers purchasing primary residences. VA loans charges an upfront VA funding fee that can be rolled into the loan amount or can be paid by the seller of the property. The funding fee varies from 1.25%-3.3% of the loan amount.

VA loans allow sellers to pay a VA buyer’s closing costs. Buyers in this case receive credit toward closing costs from the seller.

PRO: Veterans need not have to be first time buyers and they may reuse their benefits.

CON: VA loans does not guarantee the full amount of the loan that means borrowers might be subjected to additional requirements from banks. The amounts of loan which VA loans guarantee vary from country to country.

VA loans are your best choice if:

  • Both you and your spouse are veterans or military service members.
  • You don’t have enough cash to make the down payment
  • You have poor credit score.
  • You are planning to occupy the home.

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