Making a Mortgage Decision: Conventional, FHA and VA Home Loans

By Steven Roberts Updated on 7/19/2017

The three major loan program categories are conventional mortgages, FHA mortgages, and VA mortgages. Consider the following advantages and disadvantages of each to see which one is best for you:

 

Conventional Mortgages

Any home loan not insured or guaranteed by the government is a conventional mortgage loan. They're insured by the government-sponsored enterprises Fannie Mae and Freddie Mac.

Advantages More loan options No loan limit (non-conforming loans only) Less restrictions on property type Alternative collateral (think pledged asset) Lower closing costs, mostly mortgage insurance Better rates with a larger down payment

Disadvantages Larger down payment (5% minimum) Sometimes higher rates on jumbo loans Lower debt to income limits Lower credit scores means higher rates or fees Rates are higher than FHA or VA

For in-depth information about Conventional Loans, please visit Lender411's Conventional Loan page.

FHA Mortgage

A mortgage loan insured by the Federal Housing Administration (FHA) is an FHA loan.

Advantages Low Down Payments (3.5% minimum) Lower minimum Credit Score New High Loan Limit (729,750) in some areas Easier asset requirements Higher debt to income ratio allowed Lower Reserve Requirements, many times $0 Larger seller credits allowed

Disadvantages Mortgage Insurance always required Mortgage insurance much higher compared to conventional loans Fewer Financing Options More restrictive property repair requirements

For in-depth information about FHA Loans, please visit Lender411's FHA Loan page.

VA Mortgage

A mortgage guaranteed by the Department of Veteran Affairs (VA) is a VA loan.

Advantages No down payment No mortgage insurance No prepayment penalty Borrower assistance More lenient credit and income requirements Mortgage transfer available Easy refinance

Disadvantages Only available for Veterans Eligibility requirements Maximum loan amount Cost of the Funding Fee Some property type restrictions Fewer options

For in-depth information about VA Loans, please visit Lender411's VA Loan page.

Deciding on a Loan Program

Since each program has its unique benefits and drawbacks, deciding on the best loan program depends on the circumstances of the borrower. In general, each loan caters to the following borrowers:

• FHA Loan: Borrowers with lower credit scores who cannot afford to make a large down payment.
• VA Loan: Veterans with less than 20% down payment.
• Conventional Loan: Borrowers with good credit who can afford to make a down payment of 5 to 10%.