Types of Home Mortgages: FHA, VA & Conventional Home Mortgages

These three mortgages are the most popular ways to get many different mortgage products, but all have essential differences. These differences help buyers save time in targeting the kind they want.

FHA Insured Loans.

The FHA is a government entity that insures homebuyer loans. This means that they will cover the loan in case of the buyer’s default. For this, the buyer pays insurance, which can be financed into the loan itself. The FHA also has some requirements. The buyer must be able to show income sufficient to make payments, and provide a 3% down payment. The FHA is a little more relaxed about credit, but rates are still competitive with conventional interest rates. A conventional loan usually requires a higher down payment as well as primary mortgage insurance for many loans; also, credit must be better and the borrower must have a lower ratio of debt to income. For more information, go to www.hud.gov.

VA Guaranteed Loans.

The VA mortgage is reserved for members of the United States armed forces and reserves, as well as their dependents and/or survivors, under certain conditions. It is a government guarantee of payment for the lender in case of buyer default. There is often no down payment required for these loans, and processing through the VA is faster than ever before through a new automatic processing system. Military personnel all have an entitlement amount, and this can now be restored after the first home purchase so VA benefits can be used again. Although no down payment is required, there is still a limit to the total loan amount. However, there is no monthly insurance premium, and a larger choice of mortgage payments available. See www.homeloans.va.gov for details and updated information.

Conventional Mortgages.

Sometimes used to describe the traditional 30-year fixed rate mortgage, the term “conventional” also describes a home loan made by a bank or other financial institution. Generally, this is simply a loan not guaranteed or insured by the VA, FHA, or FmHA (Farmer’s Home Administration). These loans must not exceed 75% of the appraised value or purchase price (whichever is lowest), or mortgage insurance must be provided at the buyer’s expense. The advantage of the conventional mortgage is that the interest rates are generally lower that VA or FHA, even if only a fraction of a percent. The main disadvantage is that a larger down payment is required.

If you need help deciding which one of these loans is right for you, contact the appropriate government websites listed above, as well as a loan representative. In addition, the Internet and the World Wide Web is a solid resource of information when it comes to home loan options. In addition, in this day and age, you actually can make application for a home mortgage loan over the Internet and obtain nearly immediate processing of your home loan application.