Did You Know?

FHA loans are one of the best options for young, first-time home buyers who have not had as much time to save for a large down payment or establish a high credit score.

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Let's Compare FHA Loans to VA, USDA, and Conventional Mortgages

Let's Compare FHA Loans to VA, USDA, and Conventional Mortgages

Buying a home is complicated. Financing it, even more so! With so much information coming at you from different places, it can become overwhelming. However, it is incredibly important for you to stay informed, and know what your options are. So, start with the basics. Read about the four different mortgage types available before approaching a lender, so you have a better idea of what to look for. 

 FHA 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.  

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More FHA Loan Articles

Getting Approved for an FHA Loan

While an FHA home loan is a good option for first-time homebuyers who don’t have enough money saved for a large down payment, it’s important to understand the ins and outs of the FHA guidelines, and what it takes to get approved as a borrower. 

When Buying with an FHA Loan, Don't Skip the Home Inspection

This wait isn’t easy when you've been shopping for a new home. But getting a home inspection is a crucial step, and not one you should consider skipping. Make sure you hire a reliable home inspector, wait for your inspection report, and watch out for these red flags. 

Is it the Right Time for an FHA Refinance?

With historically low interest rates, the mortgage industry has seen a sharp uptick in refinances. Taking advantage of the current market might be in your best interest and could lower your monthly payment significantly. Don’t forget that refinancing a mortgage comes with closing costs.

Things to Know About Making an FHA Loan Down Payment

Many first-time homebuyers need some help understanding and navigating the ins and outs of the mortgage process, and down payments are an essential part of that. A down payment is an upfront installment made on a large purchase while the remainder is paid off with a loan.

Let's Compare FHA Loans to VA, USDA, and Conventional Mortgages

Buying and financing a home is complicated and can become overwhelming. It's important for you to stay informed, and know what your options are. So, start with the basics and read about the four different mortgage types available before approaching a lender.


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