Conventional, FHA and VA – What Mortgage Best Fits Your Needs
For those looking for a home to purchase, there are different types of financing available in the mortgage market. Currently, borrowers can decide to go with conventional, Federal Housing Administration (FHA) or Veterans Administration (VA) loans. So, it is very important to know the differences between the loan programs to determine which option is best.
A conventional mortgage loan is the regular mortgage that lenders offer to borrowers. The program follows guidelines established by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation—better known as Fannie Mae and Freddie Mac, respectively. With a conventional home mortgage, borrowers have to meet certain criteria, which include a healthy credit score, acceptable debt-to-income ratio, stable employment, and a down payment. A credit score in the 700s increases the chance of getting approved, let alone getting favorable interest rates. Also affecting the rates is the term of the loan, which can be 15 or 30 years; the longer the term, the higher the interest rate. Down payments can range from 5 percent to 20 percent, depending on the amount of financing the lender provides. Conventional loan lenders generally require more money down than other types of financing.
Best for: Borrowers with substantial income and good/great credit.
Like conventional loans, FHA mortgages are issued by traditional lenders, such as banks and financial unions. However, unlike conventional mortgages, borrowers do not need spotless credit to get financing. This is because the government—via the FHA, which is a part of the U.S. Department of Housing and Urban Development (HUD)—backs the loan, insuring the loan against default. Additionally, down payments can be much lower—they can be as low as 3.5 percent—and the program allows a higher debt-to-income ratio. FHA mortgage interest rates are typically lower than that of a conventional loan, but a conventional loan will typically cost less over the lift of the loan due to the mortgage insurance requirements on FHA mortgages.
Best for: Borrowers with limited income and poor/average credit.
VA home mortgage loans, which are administered by the U.S. Department of Veterans Affairs, are not available to just anyone. As evidenced by the prefix, they are only available to veterans of the U.S. armed forces and their spouses. VA mortgages do not have income restrictions, and they do not require a down payment. Veterans must produce a Certificate of Eligibility, in addition to being creditworthy; a credit score in the low 600s, at the very least, is ideal. VA loans are typically available at lower interest rates than conventional loans without any mortgage insurance requirement.
Best for: Borrowers (specifically veterans) with limited income and average credit.
No matter the type of mortgage loan you are looking for, let the brokers at Marquee Mortgage help you find the best possible loan available to you. At Marquee Mortgage our team of experienced professional mortgage brokers handle every loan from start to finish, helping to find better financial situations that allow you to fund the home of your dreams. Work with a team of Arizona mortgage brokers you can trust, contact Marquee Mortgage today!