Comparing Home Loans

There are different loan options available for borrowers. Each can come with its own pros and cons, so it’s important to educate yourself. Here are some of the key differences between FHA, Conventional and VA loans.

FHA 203(b) LOAN PROGRAM
The FHA 203(b) loan program is intended for buyers who are purchasing a primary residence only and is not available for second homes or investment properties.

Pros of FHA Loans:

• Minimum down payment is only 3.5%
• Interest rates are typically lower than Conventional loans
• Minimum credit scores can be as low as 580, which is lower than Conventional loan minimums
• Debt to Income (DTI) Ratio of 56.9%
• Manufactured housing is welcomed
• Condominiums already on HUD’s approved list do not need to be re-approved. View the current list at https://entp.hud.gov/idapp/html/condlook.cfm

Cons of FHA Loans:

• Monthly mortgage insurance will be required for the life of the loan with any down payment less than 10%
• There is an up-front mortgage insurance premium of 1.75% collected at closing, which can be financed into the loan amount

CONVENTIONAL LOANS
Conventional loans allow all types of occupancy, including primary residences, second homes and investment properties. For the purchase of a primary residence, buyers can put as little as 3% down.

Pros of Conventional Loans:

• Mortgage insurance can be removed at the homeowner’s request, after reaching 20% equity with a timely payment history
• A greater selection of terms is available for the consumer to select from, including adjustable rates and shorter terms
• Mortgage insurance is not required with a down payment of 20%

Cons of Conventional loans:

• Interest rates can be higher
• Higher down payments can be required (3%-5% for primary residences, 10% for second homes and 20% for investment properties
• Lower Debt-to-Income (DTI) ratios
• More stringent credit requirements

VA LOANS
VA loans are available for all eligible veterans or active-duty service members for primary residences only.

Pros of VA Loans:

• Interest rates are typically lower
• No down payment required
• Credit history requirements are less stringent
• Manufactured housing is welcome
• Monthly mortgage insurance is not required

Cons of VA Loans:

• A funding fee is collected at the time of closing and can be financed into the loan amount
• Residual income requirements must be met in addition to debt ratio requirements

If you have questions or would like to learn more about the home loan options you may qualify for, our mortgage experts are here to help. Contact us today!