Buying a home can be very overwhelming sometimes, especially if it is your first time. Knowing the differences between the various mortgages can help you answer one of your questions and help you work through this process. Whether you decide to go with a Conventional, FHA, or VA mortgage, hopefully, this can shed some light on your options and help you decide what fits best for you.
Conventional
A conventional loan is a loan that is funded by private financial lenders and not government-backed like the others. This means that conventional loans carry no guarantees for the lender if you fail to repay the loan. Because of this, if you put less than 20% down, you will likely need to pay for private mortgage insurance to make sure the lender is paid if you default on the loan. Conventional loans are the most common mortgage because they don’t have the strict regulations on income, home type and home location qualifications like the other options do. Because of that, the regulations on your credit score and debt-to-income ratio are stricter but the interest rates are also lower.
FHA
FHA home loans are mortgages designed for borrowers who have a steady income but lack the resources to put 20% down on the purchase of a home. They are particularly well suited for first-time buyers, people trying to conserve cash, early-career borrowers, or people with less-than-ideal credit history. Since an FHA loan is backed by the government the maximum amount is not as high as a conventional loan.
VA
A VA-guaranteed loan is a loan that the U.S. Department of Veterans Affairs (VA) guarantees. These mortgage loans can be guaranteed with no money down and no private mortgage insurance requirement. To qualify for a VA loan, you must be one of the following:
- a current member of the U.S. armed forces
- a veteran
- a reservist/national guard member, or
- an eligible surviving spouse