[Replay] Deciphering Mortgage Loan Options, Part III

March 8, 2022 by gjsturm88 1 Comment

For those with the New Years Resolution to purchase a new home in 2022, we’ll revisit some of our past posts on the Five C’s (criteria that lenders use), and different mortgage loan options. This week, we’ll conclude our discussion on different mortgage loan options.

This week we’ll conclude our discussion about different mortgage loans and talk about the pros and cons of VA and USDA mortgages.

Perhaps the biggest benefits of VA loans – they do not require a down payment or mortgage insurance. Mortgage insurance rates can vary greatly, and depending on the size of your down payment, your mortgage type, size of your mortgage, and your credit score, they can be as much as 2% of your balance each year. This can add hundreds of dollars to your monthly mortgage payment, and thousands of dollars over the life of the loan. The biggest downside of VA loans is simply the fact that VA loans are only available to eligible members of the military community and often require a certain number of years of service. Also, while VA loans don’t have a specific minimum FICO credit scores, they typically require higher credit scores than FHA loans.

Lastly, are USDA loans. The biggest benefit to USDA loans is that they do not require a down payment. However, USDA loans have strict income guidelines and are only available in eligible rural areas. For instance, while all of the Middle Peninsula is eligible for a USDA loan, the majority of Hampton Roads is not. Also, much like VA loans, while they don’t have a specific minimum FICO credit scores, they typically require higher credit scores than FHA loans. Lastly, USDA loans require mortgage insurance in two forms, an upfront fee and monthly mortgage insurance premiums.

To summarize, here are the best fits for each mortgage type:

For conventional, if you have a great FICO credit score, can put down a sizeable down payment, either 20% up front, or quickly get to 20% equity, or if this property will be used as a rental or investment, and you’re not a member of the military community, conventional probably makes the most sense for you.

For FHA, this is great for those with only okay but not great credit, and those with limited funds who are unable to make large down payments and are not formerly or currently in the military.

For VA, this is a great option if you’re an eligible member of the military and you have good credit.

Lastly, USDA loans are best for this with limited income and limited resources that don’t allow for a sizeable down payment, but have good credit and are looking for homes in an eligible rural area.

If you have any further questions, please let us know!