Conventional vs. FHA vs. VA Loans: Which Is Best for You?

There are two main categories of mortgages: conventional and government-backed loans. Conventional ones can be more affordable, while loans guaranteed by the government are generally easier to qualify for if you have a less-than-desirable credit score. However, these government-backed options often come with extra fees.

Buying a house for the first time can be fulfilling, but the process involved in financing a property can be overwhelming. When comparing mortgage options, it’s important to know the type of loan that best fits your needs.

What Is a Conventional Loan?

Conventional loans are the type of loans that aren’t backed by a federal agency. Since the government doesn’t insure them, they have stricter borrowing requirements.

These loan options are ideal for borrowers who have higher credit scores and money for down payments.

Conventional mortgages come in two main types: conforming and non-conforming. Conforming loans are those that meet the Federal Housing Finance Agency’s (FHFA) conforming loan limits. Non-conforming or jumbo loans are mortgages that exceed the maximum loan limit.

What Is an FHA Loan?

Securing an FHA loan means you’ll avail of services from mortgages insured by the Federal Housing Administration, which is part of the Department of Housing and Urban Development (HUD). They are issued by private FHA-approved lenders, including banks, brokers, and credit unions.

This type of loan is considered less risky by lenders, making it easier to obtain. It requires a minimum credit score of 500-580, depending on the down payment size. Additionally, it has overlays, which are additional requirements imposed by private lenders. It also comes with a few extra fees, including paying a 1.75 percent upfront mortgage insurance premium (MIP) and mortgage insurance payments of 0.45-1.05 percent of the annual loan balance.

What Is a VA Loan?

IF FHA options aren’t to your liking, you may be lucky enough to be eligible for VA loans. VA loans are insured by the U.S. Department of Veterans Affairs and offered to military veterans. Eligible borrowers are veterans who meet the service requirements and surviving spouses of veterans. Others who are also on active duty for at least 90 days are qualified for this type of loan.

Richard Pikula of  MidAmerica Bancorp. quoted “VA loan is beneficial for first-time homebuyers because it lets you finance one hundred percent of the property’s cost. As a result, the home purchase will be more affordable. Additionally, it doesn’t have a minimum credit score requirement.”

A drawback worth noting is that VA loans have an upfront fee called the VA funding fee. It is a percentage of your down payment. Also, it is based on whether or not you are getting this type of loan for the first time.

Which Mortgage Type Is Best for You?

When choosing a mortgage type, determine what loans you qualify for in terms of your financial limits. It’s also vital to consider today’s market factors. For example, if the housing inventory is exceptionally low, expect increased property prices and bidding wars for houses. In this situation, sellers and real estate agents prefer offers financed with conventional loans. To set a clearer example, government-backed loans like VA financing are more difficult to work with because of some fees veterans aren’t allowed to pay.

Buy A Home with MidAmerica Bancorp, Inc.

As a first-time homebuyer, the process of securing financing can be confusing. Knowing each type of mortgage and understanding its pros and cons will help you choose the best mortgage loan for you. If you’re now ready to discover your options and compare lenders, start reaching out to a reliable mortgage company.

Find the home loan type you need by consulting MidAmerica Bancorp, Inc. We offer different lending options that suit various goals and situations. Contact us today at (708) 237-4050 to check out our affordable mortgage rates!