FHA, VA, or Conventional? Comparing Home Loan Features
April 16, 2024
Home loans have many similar features. They require down payments, have appraisal standards, and may have rules on how you can use the property you buy. How do home loans compare to one another? We examine some of the major issues below.
VA, FHA, and Conventional Down Payments
There is no standardized down payment amount for all mortgages. Your down payment needs will vary depending on the loan type. For example, the VA loan program includes a zero-down option, and so do USDA home loans.
For FHA mortgages, you must make a minimum of 3.5% down payment. Compare that amount to conventional loans, which may require up to 20% down, depending on the lender, the loan, and your credit scores.
Many VA and FHA loans allow down payment assistance from approved sources. However, for construction loans, the lender (conventional, VA, FHA) may not permit downpayment assistance,
The thinking here is that if an applicant can’t afford the downpayment on this higher-risk mortgage, that loan may not be right for that borrower.
Mortgage Insurance Guidelines
Conventional loans typically require mortgage insurance, but a 20% down payment traditionally gets you out of this requirement.
VA loans have no VA-required mortgage insurance guidelines. That is rare in the business. Compare that to the FHA loan rules in HUD 4000.1 which require mortgage insurance for either 11 years or the full term of the loan.
The duration of your FHA mortgage insurance depends on the amount of your down payment.
Remember, we’re talking here about the insurance your lender requires to protect them in case you default on the loan, not to be confused with homeowner’s insurance.
Early Payoff of Your Home Loan
It is true that some conventional construction loans include a penalty for early loan repayment, and to learn whether yours does too, you must ask your lender and read the fine print of your legally binding loan agreement.
Early payoff of the loan can happen when you sell your house, refinance it, or simply make larger payments.
VA and FHA construction loans have rules that forbid the lender to charge an early payoff fee.
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VA, FHA, and Conventional Down Payments
There is no standardized down payment amount for all mortgages. Your down payment needs will vary depending on the loan type. For example, the VA loan program includes a zero-down option, and so do USDA home loans.
For FHA mortgages, you must make a minimum of 3.5% down payment. Compare that amount to conventional loans, which may require up to 20% down, depending on the lender, the loan, and your credit scores.
Many VA and FHA loans allow down payment assistance from approved sources. However, for construction loans, the lender (conventional, VA, FHA) may not permit downpayment assistance,
The thinking here is that if an applicant can’t afford the downpayment on this higher-risk mortgage, that loan may not be right for that borrower.
Mortgage Insurance Guidelines
Conventional loans typically require mortgage insurance, but a 20% down payment traditionally gets you out of this requirement.
VA loans have no VA-required mortgage insurance guidelines. That is rare in the business. Compare that to the FHA loan rules in HUD 4000.1 which require mortgage insurance for either 11 years or the full term of the loan.
The duration of your FHA mortgage insurance depends on the amount of your down payment.
Remember, we’re talking here about the insurance your lender requires to protect them in case you default on the loan, not to be confused with homeowner’s insurance.
Early Payoff of Your Home Loan
It is true that some conventional construction loans include a penalty for early loan repayment, and to learn whether yours does too, you must ask your lender and read the fine print of your legally binding loan agreement.
Early payoff of the loan can happen when you sell your house, refinance it, or simply make larger payments.
VA and FHA construction loans have rules that forbid the lender to charge an early payoff fee.
------------------------------
RELATED VIDEOS:
Here's the Scoop on Conventional Loans
When Do You Need a Cosigner?
Analyzing Your Debt Ratio
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