Most home loans are either conventional, FHA, or VA backed mortgages. Each loan type has pros and cons. Below is a brief summary on the loan types.
Conventional loans are typically backed by Fannie Mae or Freddie Mac. Conventional loans often have no mortgage insurance requirements if you have enough equity in the home or make a large enough down payment. These loans also have less strict requirements on property condition when compared to FHA or VA loans. If a borrower has an excellent credit score they can often use a conventional loan to get in with a low down payment and have a lower private mortgage insurance (PMI) rate than what an FHA loan may offer. However, often times conventional loan interest rates are slightly higher than FHA or VA home loan options.
FHA mortgages sometimes have lower interest rates than conventional loans but typically have higher PMI rates than conventional loans. As well, FHA has an up-front mortgage insurance premium that gets added to the loan amount as well as having monthly PMI that is usually there for the entire life of the loan. FHA is not as strict as conventional lenders on their credit score and credit history requirements. FHA appraisal requirements are typically more stringent than conventional loans which often makes it harder for buyers using FHA loans to get their purchase offers accepted by sellers due to these requirements.
VA loans are backed by the Veterans Administration and are designed for active duty or veterans of the armed forces or their spouses to be able to obtain a home loan. VA loans allow borrowers to get in with no down payment and they have no PMI. The VA does impose a funding fee which is added to the loan amount. The amount of the funding fee varies depending upon the amount of any down payment, any prior VA loan use, and whether the loan is a purchase or refinance. Veterans that have a service connected disability are able to have the funding fee waived. VA home loans typically have interest rates that are lower than conventional loans.
Call us for a more in depth review of the best loan type for your situation.