Differences Between FHA, VA, and Conventional Mortgages

January 15, 2023

What are the major differences between FHA, VA, and conventional mortgages? No matter if you are buying an existing home or if you choose to have your house built from the ground up, there are some important differences to keep in mind about each type of loan.

FHA Mortgages vs. VA Mortgages

The similarities between these two mortgages include the fact that they are both government-backed, and that they both have more forgiving credit requirements. The differences are vast. 
FHA mortgages have a down payment requirement--a minimum of 3.5% is typically required. FHA loans require mortgage insurance, and that mortgage insurance typically runs either for 11 years or the full term of the loan depending on the nature of your loan.

By contrast, VA mortgages have no down payment requirement, have no mortgage insurance requirement, and depending on your veteran status you may qualify for a waiver on certain loan-based fees such as the VA loan funding fee.

But there’s an important factor with VA mortgages--they aren’t offered to the general public but only to those with qualifying military service.

Both VA and FHA mortgages require appraisals, both require the lender to determine the property isn’t in a special flood hazard zone, and the home in both cases must meet or be repaired to meet state/local building code as a condition of loan approval.

And for those who may qualify for both types of government-backed home loan program, both mortgages feature the ability to add loan funds for energy saving upgrades to the home.

FHA Mortgages vs. Conventional Loans

There are far too many types of conventional mortgages to compare and contrast definitively, but typical conventional loans require at least 20% down to avoid mortgage insurance, they typically require the borrower to qualify with higher credit score requirements than FHA mortgages.

Conventional loans may allow the borrower to apply for a home equity line of credit down the line once the home has built up enough equity.

FHA loans, by contrast, require mortgage insurance for either 11 years or the entire loan as mentioned above; FHA mortgages have more forgiving credit requirements than some conventional loans, and FHA borrowers have the option of cash-out refinancing when there is sufficient equity in the home.

No, FHA loans don’t feature a home equity line of credit option, but if you need loan funds to repair or upgrade your home at some point an FHA 203(k) Rehabilitation Refinance loan can help.

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