If you’re in the market for a home, you may be overwhelmed by all of the loan options available. From conventional to VA loans, there are hundreds of different products and features to consider when choosing the right loan for your needs and current financial situation.
A conventional mortgage is one that isn’t insured by any government agency—usually issued by banks, credit unions, or other financial institutions. They typically require higher credit scores than other types of mortgages and usually carry lower interest rates, although this is not always the case. The two main types of conventional loans are fixed-rate mortgages and adjustable-rate mortgages (ARMs). Fixed-rate mortgages have an interest rate that stays the same over time while ARMs have an initial fixed-rate period followed by periodic increases or decreases as market conditions change.
VA loans are backed by the U.S Department of Veterans Affairs (VA) and are available only to veterans and active duty military personnel who meet eligibility requirements. VA loans typically come with more lenient terms than other types of home loans, such as lower closing costs and down payment requirements, as well as no private mortgage insurance (PMI) requirement. This makes them particularly attractive to first-time homebuyers who otherwise might not be able to afford a down payment on a conventional mortgage.
FHA loans are insured by the Federal Housing Administration (FHA) and have become increasingly popular due to their flexible terms, including minimal down payment requirements (as little as 3.5%) and low closing costs compared with other types of home loans. FHA loans also offer more lenient credit score requirements than most other types of mortgages, making them a great option for those with less than perfect credit histories or who don’t qualify for conventional financing. However, FHA loans do require borrowers to pay an upfront mortgage insurance premium that protects lenders from losses in case of default—a cost that can add up over time if you stay in your home longer than planned.
Understanding all of your options when it comes to choosing a home loan is essential if you want to get the best deal possible on your new property purchase. Hopefully this overview can help you make an informed decision about which option is right for you!