Which mortgage loan is the best?
Are you buying a home and wondering which loan is best for you? When buying a home, it’s important to explore your different loan options. Three popular loan types are FHA, VA, and conventional. Each has its own set of benefit and drawbacks that can impact your decision-making process. By understanding your options better, you’ll be able to make a better decision. So, let’s dive into each one.
🔸 FHA
🔸 VA
🔸 Conventional
FHA Loan
Minimum Down Payment: 3.5%
Minimum Credit Score: 580
FHA loans are great for people who might not have a large amount of money saved up and have modest credit. People like this loan for its lower down payment requirements, lenient credit score requirements, and flexible debt-to-income (DTI) ratios. A few drawbacks include the mortgage insurance premiums which increase your monthly payments, stricter property condition requirements, and it might be difficult to use in competitive sellers markets.
Pros
✅ Lower down payment requirements (as low as 3.5%)
✅ More flexible credit score requirements
✅ Higher debt-to-income ratio allowances
✅ Lower closing costs
Cons
⚠️ Requires mortgage insurance premiums (MIP) for the life of the loan
⚠️ MIP can increase monthly mortgage payments
⚠️ Limits on the amount you can borrow
⚠️ Limited to primary residences only
VA Loan
Minimum Down Payment: 0%
Minimum Credit Score: None
VA loans are reserved for eligible active-duty military, veterans, and their families. This loan is known for no down payment requirement, no mortgage insurance, and offers some of the lowest interest rates. A few drawbacks include a funding fee – which can be rolled into the loan or paid upfront, the appraisal process may be a bit stricter, and – similar to FHA loans – it might be difficult to use in competitive sellers markets.
Pros
✅ No down payment required
✅ No mortgage insurance premiums (MIP or PMI)
✅ Lower credit score requirements
✅ Lower interest rates
✅ No prepayment penalties
Cons
⚠️ Only available to eligible active-duty military members, veterans, and their families
⚠️ Limited to primary residences only
⚠️ Funding fee required, which can be added to the loan amount or paid upfront
⚠️ Appraisal process may be more stringent
Conventional Loan
Minimum Down Payment: 3%-5%
Minimum Credit Score: 620
Conventional loans are great for people who have some money saved up and have excellent credit. People use this loan for its flexibility, higher loan limits, and lenient property condition requirements. A few drawbacks include needing a larger down payment, stricter credit score requirements, and if placing less than 20% down – you'll incur Private Mortgage Insurance – also known as PMI.
Pros:
✅ No upfront mortgage insurance premium (MIP)
✅ Private mortgage insurance (PMI) can be removed once you have enough equity in the property
✅ No limits on the amount you can borrow
✅ Available for primary, second homes, and investment properties
Cons:
⚠️ Higher down payment requirements (typically 5-20%)
⚠️ Stricter credit score requirements
⚠️ Higher debt-to-income ratio requirements
⚠️ Generally higher interest rates
💯 BONUS TIP 💯
House Hacking
House Hacking is a strategy used by real estate investors to reduce their living expenses by renting out a portion of their primary residence. This usually involves buying a multi-unit property (e.g., duplex, triplex, or fourplex) and living in one unit while renting out the others. By doing this, the rent collected from the tenants can cover some or all of the mortgage payment, reducing the homeowner's living expenses. House Hacking can be an effective way to start building a real estate investment portfolio, as it allows investors to get into the market with little money down and generate rental income to reinvest in additional properties.
🗣 TLDR
The three most common loans are FHA, VA, and conventional loans. Their respective minimum down payments are 3.5%, 0%, and 3%, respectively. House hacking is a real estate investment strategy where a homeowner rents out a portion of their primary residence to cover some or all of the mortgage payment.
✌️ & 🖤,
James Paul Valerio
(323) 420-4669
Get your FREE Ultimate Buyer’s Guide
✨The Ultimate Home Buyer's Guide✨ is a FREE comprehensive blueprint that is meant to simplify the home buying process.
Your real estate experience matters.
Buying or selling a home (especially for the first time) can be nerve-racking. To alleviate teh anxiety, we emphasize educating our clients so they understand what to expect during their real estate journey. If you would like to chat about buying or selling a home, schedule your FREE consultation today by clicking the link below!
James Paul Valerio
Broker & Owner of The Valerio Group, Inc.
DRE #02001410
