Types of Mortgages, VA, FHA, and Conventional

There are several types of mortgages available to you, and each has its advantages and disadvantages. For this reason, it is crucial to first understand the pros and cons of each before making a decision on which one will be best suited for your needs. 

This piece will discuss the benefits and drawbacks of several types of mortgages.  

1. FHA Mortgage 

This is a government-backed loan that allows buyers with low credit scores or no credit history to qualify for a loan. However, if you default on your payments, the federal government may take back your property from you. 

Benefits of FHA Mortgages 

  • Low down payment – usually around 3% of the purchase price
  • Doesn’t require mortgage insurance (PMI)
  • Allows borrowers who have bad credit to qualify for a loan

Drawbacks 

Some of the disadvantages associated with FHA mortgages include: 

  • Higher interest rates
  • Borrowers must pay taxes on any equity they gain when selling their homes
  • Lenders cannot appraise properties as accurately as other lenders

2. Conventional Mortgage 

A conventional home loan is usually used by those looking to purchase a house or refinance an existing home mortgage. You pay a fixed interest rate over a set period (usually 30 years) with a conventional loan.  

Advantages of Conventional Mortgages 

  • Usually, the lowest-priced option
  • Lower monthly payments than other options
  • Can be used for both new purchases and refinancing
  • Does not require private mortgage insurance (PMI)
  • Appraisal fees are lower than other loans

Disadvantages of Convectional Mortgages 

  • Higher interest rates
  • Requires a larger down payment
  • May need to pay taxes on any equity gained when selling the house
  • Cannot be used for second mortgages

3. VA Loan 

The U.S. Department of Veterans Affairs provides VA Loans to veterans and active military personnel. The VA offers two different loans: purchase loans and refinances loans. Typically, a refinance loan help in refinancing an existing mortgage/ on the other hand, purchase loans are ideal when buying a home in South Florida.  

VA loans offer many benefits, including: 

  • No private mortgage insurance (PMI) is required
  • No appraisal fee required
  • No closing costs
  • Interest rates are typically lower than conventional loans
  • You do not have to pay taxes on any gains made when selling your home
  • Some lenders allow you to use the proceeds from the sale of your current home to reduce your debt

Disadvantages of VA loans 

  • Limited availability
  • Higher down payment requirements
  • Requires a minimum down payment of at least 10% 
  • Your credit score must be above 580 to qualify

There are many factors to consider when choosing between these three types of mortgages. It is essential to know what you want out of a home mortgage before deciding which type of mortgage will work best for you. for more details about home loans, be sure to contact us right away. 

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