November 10th, 2017 7:09 AM by Jackie A. Graves
most mortgage borrowers, there are three major loan types: conventional, FHA
and VA. Here is how they compare.
Who they’re for: Conventional
mortgages are ideal for borrowers with good or excellent credit.
Start out right by shopping today for a mortgage.
How they work: Conventional mortgages
are “plain vanilla” home loans. They follow fairly conservative guidelines for:
of monthly income that is spent on debt payments, including mortgages, student
loans, auto loans,
minimum credit card payments and child support.
fees, third-party fees, down payments, mortgage insurance and points can mean
the borrower has to show up at closing with a sizable sum of money out of
out more about closing costs and how to save money.
What’s good: Conventional
mortgages generally pose fewer hurdles than Federal Housing Administration or
Veterans Affairs mortgages, which may take longer to process.
What’s not as good: You’ll
need excellent credit to qualify for the best interest rates.
How they work: The
Federal Housing Administration does not lend money. It insures mortgages.
FHA allows borrowers to spend up to 56 percent or 57 percent of their income on
monthly debt obligations, such as mortgage, credit cards, student loans and car
loans. In contrast, conventional mortgage guidelines tend to cap debt-to-income
ratios at around 43 percent.
many FHA borrowers, the minimum down payment is 3.5 percent. Borrowers can
qualify for FHA loans with credit scores of 580 and even lower.
FHA loan has two mortgage insurance premiums:
What’s good: FHA
loans are often the only option for borrowers with high debt-to-income ratios
and low credit scores.
What’s not as good: To
get rid of FHA premiums, you must refinance the loan.
Who they’re for: Most
active-duty military and veterans qualify for Veterans Affairs mortgages. Many
reservists and National Guard members are eligible. Spouses of military members
who died while on active duty or as a result of a service-connected disability
may also apply.
to know more? Read up on VA loans.
How they work: No
down payment is required from qualified borrowers buying primary residences.
The VA does not lend money, but guarantees loans made by private lenders.
VA charges an upfront VA funding fee, which can be rolled into the loan or paid
by the seller. The funding fee varies from 1.25 percent to 3.3 percent of the
VA allows sellers to pay closing costs but doesn’t require them to. So, the
buyer might need money for closing costs. Borrowers may need money for the
What’s good: VA
borrowers can qualify for 100 percent financing. Veterans do not have to be
first-time buyers and may reuse their benefit.
What’s not as good: According
to the VA, there isn’t a cap on the amount you can borrow. “However, there are
limits on the amount of liability VA can assume, which usually affects the
amount of money an institution will lend you. The loan limits are the amount a
qualified veteran with full entitlement may be able to borrow without making a
down payment. These loan limits vary by county, since the value of a house
depends in part on its location.”
for a VA loan today.
By Holden Lewis – To view
the original article click here