What are the most common mortgage types? Deep dive into each coming soon.
Conventional, FHA, USDA, and VA loans are different types of mortgage loans, each with its own set of features and eligibility criteria. Here's a brief overview of the differences:
Definition: Conventional loans are mortgage loans that are not guaranteed or insured by any government agency.
Down Payment: Typically, conventional loans require a higher down payment compared to government-backed loans. A down payment of at least 3% to 20% of the home's purchase price is common.
Credit Score: Generally, a higher credit score is required for approval, and interest rates may be influenced by the borrower's creditworthiness.
Private Mortgage Insurance (PMI): If the down payment is less than 20%, borrowers usually need to pay for private mortgage insurance until they reach a certain level of equity in the home.
FHA Loans (Federal Housing Administration):
Definition: FHA loans are insured by the Federal Housing Administration, making them more accessible to borrowers with lower credit scores and smaller down payments.
Down Payment: FHA loans typically have lower down payment requirements, often as low as 3.5% of the home's purchase price.
Credit Score: FHA loans are more lenient regarding credit scores, making them an option for borrowers with lower credit ratings.
Mortgage Insurance: Borrowers are required to pay an upfront mortgage insurance premium (MIP) and an annual MIP.
USDA Loans (United States Department of Agriculture):
Definition: USDA loans are designed to encourage rural development and homeownership in eligible rural and suburban areas.
Down Payment: USDA loans may offer zero down payment options for eligible borrowers in qualified rural areas.
Income Limits: There are income limits for eligibility, and the property must be located in a designated rural or suburban area.
Guarantee Fee: Borrowers may be required to pay a guarantee fee, which is a form of mortgage insurance.
VA Loans (Department of Veterans Affairs):
Definition: VA loans are designed to assist eligible veterans, active-duty service members, and certain spouses in obtaining homeownership.
Down Payment: VA loans often allow for zero down payment, making them attractive to eligible military personnel.
Funding Fee: There is a funding fee, but it can be financed as part of the loan. The funding fee varies based on factors such as military service and down payment amount.
No PMI: VA loans typically do not require private mortgage insurance.
When choosing a mortgage loan, it's essential to consider your financial situation, credit history, and eligibility criteria for each loan type to determine which one best suits your needs.