Let's Compare FHA Loans to VA, USDA, and Conventional Mortgages
November 30, 2022FHA Loans
FHA mortgages are backed by the U.S. Federal Housing Administration, a government agency established by HUD to promote equal opportunity housing opportunities for Americans. Borrowers can apply for FHA loans through lenders who are approved to provide them by the FHA. FHA loan programs are a particularly good choice for first-time homebuyers because they are designed with them in mind. The FHA has easier-to-meet standards for borrowers, such as a minimum credit score of 580, a smaller down payment requirement of 3.5%, and a debt-to-income ratio of 43% or less. Since the FHA backs these loans and protects lenders from losses, the lenders find it easier to grant loans to higher-risk borrowers.
VA Loans
VA home loans are great options for active or retired members of the U.S. military, and even for certain qualifying relatives. VA loans are backed by the Department of Veterans Affairs and have many similar features as FHA loans, namely, less stringent eligibility requirements. However, unlike FHA loans, the VA requires NO down payment for VA loans. This makes VA loans especially appealing to first-time homebuyers. About 90% of VA loan borrowers don't put down any money when financing their home.
USDA Mortgages
USDA loans are a lot like the VA and FHA loan programs, but these are backed by the United States Department of Agriculture. These mortgages were established to help make homeownership more affordable in qualifying, rural areas. Unlike the FHA, the USDA sets income limits that borrowers must fall under to qualify for a USDA loan. This limit is typically under 115% of the area median income, which limits the applications to low- and moderate-income families.
Conventional Mortgage
Simply put, conventional loans are mortgages that are not insured by the government, which also means that there are no additional qualification requirements set by any agency outside the lender.
Since conventional loans are not insured by a government agency like the FHA, VA, or USDA, it comes with more risk for lenders. If a borrower defaults on their mortgage, the lender stands to lose out on those payments and interest. That is why conventional loans come with higher qualifying requirements that borrowers must satisfy. Homebuyers with low credit scores who are accepted for government-backed loans may not qualify for conventional loans, since lenders need to be more certain that the borrower can repay the loan. Most conventional loans have a minimum credit score of 620, and a minimum down payment of 5% with private mortgage insurance. Given all these hurdles, keep in mind that conventional loans usually offer comparatively lower interest rates.
You should always talk to an experienced loan officer to see what the best loan type is to suit your needs, but it helps to do your own homework. If you approach a lender already having an idea of what you are looking for, it shows that you are prepared.
------------------------------
RELATED VIDEOS:
Homebuyers Benefit From the Work Done by Fannie Mae
HUD 4000.1 is Sometimes Called the FHA Handbook
Credit History Is Presented as Your FICO Score
FHA Loan Articles
November 27, 2024If you are new to the home loan process, you may wonder how your loan officer will interpret your application data. How lenient is the lender with issues related to debt, credit utilization, and related factors? We examine some key points, but remember that what follows is not financial advice. Always consult a finance or tax professional for the most current information.
November 26, 2024
Thinking about buying a home? One of the first things you'll want to consider doing is filling out forms to be pre-approved for your FHA mortgage. This means a lender takes a look at your finances to figure out how much they're willing to loan you. It's a smart move, but you might be wondering: "Will applying for pre-approval hurt my credit score?"
November 25, 2024FHA mortgages include a refinance option that allows you to pull equity from your home in cash. The FHA cash-out refinance loan allows the borrower to take the difference between what remains to be paid on the home and the amount of equity built up.
The FHA loan program has some competition in this area, but how do your other government-backed refinance loan options measure up?
November 21, 2024The dream of homeownership is with some from a young age. But in an uncertain housing market, some grapple with the question: Is buying a home the right move for me?
While renting offers relocation flexibility and lower upfront costs, homeownership provides a wealth of financial and personal benefits.
November 20, 2024Refinancing your mortgage offers a way to cash in on your home equity, potentially reduce your interest rate, or modify your loan term. Borrowers ready to consider have options including FHA loans and conventional loans.
While both provide avenues for refinancing, each loan type may be best for specific needs and financial circumstances. What are the differences between FHA and conventional refinance options?