Tuesday, December 07 2021

Researching Mortgages

Securing a loan for purchasing a house is a rite of passage for many adults. Many consumers, however, can quickly become overwhelmed by the sheer amount of information available regarding home loans, including conventional, VA, and FHA mortgages. While VA and FHA mortgages are secured by the government and involve special considerations, conventional mortgages are simply issued to those who qualify. For consumers considering buying a home, there are many pros and cons of VA vs FHA vs conventional home loans. Each type of loan offers specific benefits for consumers, and understanding the conditions associated with these loans can help consumers fight the right loans to fit their needs. The top three things to ask when asking for VA home loans involve interest rates, required down payments, and eligibility for each type of loan.

Conventional, VA and FHA mortgages are similar in that they are all issued by approved lenders, but they have major differences that consumers need to be aware of. Conventional loans have stricter guidelines when compared to VA and FHA loans. Issued by banks and approved lenders, these types of loans are available to all consumers, but they are more difficult to quality for. Interest rates for conventional loans are generally lower, but lenders prefer down payments of 20% to 30%. If there isn’t at least 20% equity in the home, a borrower must carry private mortgage insurance. Home buyers must have good credit scores and fairly low debt-to-income ratios, and they must also show proof of steady employment Unlike VA and FHA loans, the government does not back the loan if consumers fail to pay.

VA loans are issued by approved lenders and guaranteed by the Veterans Administration. VA loans are only available for certain borrowers, including veterans or current members of the United States Armed Forces. Reservists and surviving spouses may also be eligible. While interest rates for VA loans may not be the lowest available, borrowers can refinance at a later time when interest rates fall. These loans do not require down payments, high credit scores, or private mortgage insurance. Any costs associated with a VA loan can be rolled into the loan itself. Those applying for VA loans must fill out paperwork that proves that they are eligible for this type of financing.

For those who have not served in the U.S. Armed Forces but need a loan that is easier to qualify for, an FHA loan may be the right choice. These types of loans are issued by traditional financial institutions but are guaranteed by the Federal Housing Administration, which means this government entity will repay the loan is borrowers default. While an FHA loan is less strict than a conventional loan, the loans themselves are limited in scope, providing a maximum amount that consumers can borrow. These maximums depend largely on given regions in the United States, and borrowers must carry mortgage insurance regardless of how much they borrow. Even though interest rates are higher on FHA loans, down payments can be as low as 3.5%, and closing costs can be lower overall or rolled into the terms of the loan. For borrowers with limited savings or lower credit scores, an FHA loan may be the best fit.