What Kind of Home Loan Works for Me?
March 30, 2022
Here are four types of mortgages to choose from.
FHA Loan
An FHA loan is one that is insured by the U.S. Federal Housing Administration and granted by lenders who are approved by the agency. FHA loan programs are generally designed with first-time homebuyers in mind, making them easier to qualify for than conventional home loans. With a government organization backing the loans, lenders are protected from losses when granting home loans to borrowers who may otherwise be considered high-risk. That is why FHA loans are known for having less stringent eligibility requirements, with minimum credit scores of 580, a debt-to-income ratio of 43% or less, and a low- down payment of 3.5%.
VA Home Loan
Backed by the U.S. Department of Veterans Affairs, VA home loans are available to active or retired members of the U.S. military, as well as to certain qualifying relatives. Applicants are required to have a certificate of eligibility from the VA in order to apply for a VA loan. This loan type has many of the same benefits as the FHA loans, with lower credit requirements. However, one of the things that makes VA home loans particularly attractive to eligible servicemembers is that they do not require any down payment. In fact, about 90% of VA borrowers put down no money at all when they buy homes.
USDA Mortgage
Similar to both the VA and FHA programs, USDA home loans are designed to make homeownership more affordable for Americans. USDA loans are backed by the United States Department of Agriculture, and meant for borrowers looking to buy homes in qualifying rural areas. Since this loan type is meant for low and moderate-income individuals, the USDA sets income limits for their programs, generally no higher than 115% of the median income for the area.
Conventional Mortgage
Also known as a traditional mortgage, a conventional home loan is one that is not insured by any government agency. That means that you won’t need to meet specific requirements other than those set by the lender.
While conventional loans are the most popular mortgage option, they are at times more difficult to qualify for. They usually have stricter stipulations than other loan types. Most conventional loan lenders require a credit score of 620 or higher and a minimum down payment of 5% with private mortgage insurance required. That being said, conventional loans typically offer lower interest rates compared to other loan types.
It’s important that you know exactly what you are getting into when buying a house, and your mortgage is huge part of that. Talk to a experienced loan officer about your choices, and see what the best mortgage option is for you!
------------------------------
RELATED VIDEOS:
A Good Faith Estimate Provides Mortgage Information
Measuring Your Loan-to-Value Ratio
Monitor Your Credit Score
FHA Loan Articles
April 30, 2025 In a previous post, we discussed why FHA borrowers should carefully consider whether paying for discount points truly serves their best interests, focusing on factors like short-term homeownership, opportunity cost, FHA mortgage insurance, and the prevailing interest rate environment. Discount points are an option for borrowers willing to pay a fee to lower the interest rate by a set amount. This is not right for all borrowers, and you don't want to pay for points you won't benefit from during the loan term.
April 29, 2025Are you considering buying a home with an FHA loan? You'll likely talk to your participating lender about FHA loan "discount points" – fees you pay upfront for a lower interest rate on your mortgage. The idea behind discount points is a straightforward exchange: you spend money today to reduce your interest rate. Typically, one point equals one percent of your total FHA loan. In return, your interest rate might decrease by an amount you and the lender agree upon.
April 28, 2025Home loans have various expenses that aren't apparent to a new borrower until much later in the process. What do you need to consider when making your home loan budget? It might not be complete without addressing some of the issues we cover here.
April 23, 2025 While the prospect of lower interest rates or more favorable loan terms can be enticing, there are situations where waiting is the better option. Refinancing without carefully considering your current financial circumstances is never a good idea, but careful planning in the current financial environment is even more important.
April 22, 2025First-time home buyers worry about loan approval, but there are important steps to take to increase the likelihood that the lender will approve their application for the loan or pre-approval. What do you need to know before you choose a lender?
