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Conventional, VA or FHA: Which Loan is Right for You?

August 14th, 2015 10:09 AM by Jackie A. Graves, President

When buying or refinancing a home, you’ll probably want to run the numbers for VA loans, FHA loans and conventional mortgages to see which loan is the better deal for you. Studies show that about 25 percent of veterans do not use VA financing when they buy their homes, for a variety of reasons. Here’s a quick rundown of the differences between FHA, VA and conventional home loans.

VA Loans

VA Purchase 

  • Down payment: 0%

  • Minimum credit score: Officially, none, but lenders are allowed to set their own minimums 

  • Upfront fees:    1.5% to 3.3% funding fee, depending on the size of your down payment and how many times you have used your eligibility. This fee can be wrapped into your loan.

  • Mortgage insurance:  0%, because the finding fee functions as mortgage insurance

  • Comments:Only servicemembers, veterans and some dependents are eligible. VA mortgages can be assumed by anyone who meets underwriting guidelines.

VA Refinance 

  • Maximum loan-to-value:  100.00%

  • Upfront fees:  Same as for purchase unless refinancing a VA loan. Then the IRRRL (streamline refinance) fee is only .5%.

  • Mortgage insurance: 0%, because it’s covered by the funding fee.

  • Cash out:  100% loan-to-value is allowed by the VA, but many lenders impose a 90% limit. No extra fees apply.

FHA Loans

FHA Purchase

  • Down payment:  3.5% for applicants with credit score of 580 or higher, 10% for those with scores of 500-579.

  • Minimum credit score: Officially, 500 for a 90% loan and 580 for a 96.5% loan. Lenders often set higher minimums.

  • Upfront fees:  1.75% upfront mortgage insurance premium (MIP), which can be wrapped into the loan.

  • Mortgage insurance:  1.25% - 1.5% per year for 30-year terms. Slightly less for 15-year loans. 

  • Comments:  As of 06/11/12, higher fees apply to "jumbo FHA" loan amounts.

FHA Refinance 

  • Maximum loan-to-value:  97.50% 

  • Upfront fees:  1.75% for conventional-to-FHA refis, .01% for streamline refinances of FHA loans taken out before June 1, 2009, and 1.75% for other FHA-to-FHA refinances.

  • Mortgage insurance:  1.25% - 1.5% per year 

  • Cash out:  85% loan-to-value is allowed. No additional fees apply.

Conventional Loans

Community Homebuyer Purchase

  • Down payment:  3%

  • Minimum credit score: 660 if manually underwritten, none if underwritten electronically and approved

  • Upfront fees:  0.75% 

  • Mortgage insurance: .65% to 1.62% per year

  • Comments:  Offered by Fannie Mae and Freddie Mac to borrowers who meet specific income criteria or buy properties in eligible geographic locations (for example, areas listed under FannieNeighbors®).

Community Homebuyer Refinance 

  • Maximum loan-to-value:  97.00%

  • Upfront fees:  0.75% 

  • Mortgage insurance:  .65% to 1.62% per year 

  • Cash out:  Not allowed.

Other Conforming Purchase Loans

  • Down payment: 5.00% for highly qualified buyers only

  • Minimum credit score: 700+ for LTV > 80%, 620 – 680 otherwise.

  • Upfront fees :5% - 3.75% depending on credit score and down payment. 

  • Mortgage insurance: .26% to 2.62% per year if LTV > 80%

  • Comments: Underwriting is strict and risk-based pricing adjustments can be expensive if you have a small down payment or low credit score. For non-conforming or jumbo loans, guidelines are not standard, but requirements are generally very rigorous.

Other Conforming Refinance Loans

  • Maximum loan-to-value:  95.00%

  • Upfront fees:  .5% - 3.75% depending on credit score and equity

  • Mortgage insurance: .26% to 2.62% per year if LTV > 80%

  • Cash out: Allowed to 85%. Underwriting is very strict and extra fees range from 0% to 3%

By Gina Pogol – To view the original article click here

Posted by Jackie A. Graves, President on August 14th, 2015 10:09 AM


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