Comparing 3 Types of Home Loans

Are you looking into your next home purchase or refinance but not sure what kind of mortgage product to use? Here are some things that you should know about conventions, FHA, and VA loans.

Down Payment

The three types of loans are also very different in regards to how much of a down payment you need to provide. Thankfully, those that are getting a VA loan do not need to provide any down payment if they do not want to. No down payment will increase the amount of the loan and the amount of interest that is paid over time but you won't have to provide money upfront to get the loan.

If you want a conventional mortgage, you'll need to have at least 3% of the home's value set aside for the down payment. An FHA loan has a slightly higher requirement depending on your credit score. Those that have good credit will pay as little as 3.5%, while those with bad credit will need 10% of the home's value. This can be a bit too much for some people to afford, which can make them look into other mortgage products that they qualify for.

Private Mortgage Insurance 

Your monthly mortgage payment will depend on a few different factors that separate the different mortgage products. It is not so much based on the interest rate, but the nature of each loan and if you have to pay for private mortgage insurance. If you get a VA loan, for example, then you will not have to pay for private mortgage insurance. It doesn't matter how big or small of a down payment you have, since VA loans do not make the borrower pay PMI as a benefit to those that qualify for the product. 

A conventional mortgage will require you to pay PMI if you did not provide a 20% down payment, but allow you to remove PMI once you've built up 20% of the home's equity. This can be done by simply making your monthly mortgage payments or having the home appraised after it has increased in value to show that you have 20% equity. An FHA loan is not going to allow you to easily remove the PMI payment if you provide less than a 20% down payment. Even after you reach 20% equity, you won't be allowed to remove it either. The only way to get rid of PMI is to refinance your home and provide 20% of the home's value. 

To learn more about home loans, contact companies like Dominion Capital Mortgage.

Share