Buying a home is one of the biggest financial decisions many people will make. You have already done the work to transition from renting to buying; now, it’s time to begin locking in a loan. With so many mortgage options, it can be overwhelming and difficult to feel confident you’re making the best choice. What is an FHA home loan? How does someone qualify for a conventional home loan? Learn the pros, cons, and all the core features of a traditional home loan, VA home loan, and more with our complete guide below. Discover what type of financing will be best to secure your dream home.
What Is a Conventional Home Loan?
A traditional home loan is referred to as such because it is the most popular and, therefore, the most common financing method. In 2023, 73% of purchases were made using a conventional home loan. This type of loan is not government-insured and is often backed by private lenders.
Features
A traditional home loan requires the purchaser to apply for a specified amount, provide qualifying documentation for the lender to verify, and then set terms to be mutually agreed upon. These loans are typically offered as 15 or 30-year periods and require an initial down payment. While a 20% down payment is generally expected, 3 – 20% down is often acceptable.
Pros
- Since these loans are privately backed, buyers can borrow more compared to other loan types on this list.
- This loan can be used to buy secondary homes or investment properties.
Cons
- For smaller down payments, lenders may also require private mortgage insurance (PMI), an additional monthly fee separate from home insurance.
- Most popular lenders require a minimum credit score of 620 to secure a loan.
What Is an FHA Home Loan?
When asking, “What is an FHA home loan?” you must first understand the FHA. The FHA is the Federal Housing Administration and exists to help lower- and middle-class buyers purchase homes.
Features
FHA loans require a minimum down payment of 3.5%. However, buyers must also pay a monthly mortgage insurance premium (MIP). This premium typically runs below 1% of the loan’s total value.
Pros
- Unlike conventional loans, FHA loans have much lower qualifying credit scores. They will typically allow scores as low as 500.
- Those with high debt or a more complex financial history, such as bankruptcy, can still qualify for FHA loans.
Cons
- You must show a steady and reliable job history to qualify.
- After purchasing a home with an FHA loan, you must inhabit the property within 60 days.
What Is a VA Home Loan?
The Department of Veteran Affairs (VA) offers a VA home loan exclusively for service members and their spouses. These loans were created to benefit veterans and address homelessness among returning servicemen.
Features
A VA home loan functions similarly to a conventional home loan, with a few additional benefits. These loans are all backed by the Department of Veteran Affairs rather than private companies.
Pros
- VA loans typically do not require a down payment.
- Unlike FHA loans, VA loans do not require PMI or MIP.
Cons
- A few additional steps—such as a Certificate of Eligibility—are required since VA loans are backed by a government department.
- Like FHA loans, VA loans can only be used for primary residences.
Buying Your Home with Confidence
Whether moving forward with a traditional home loan, a VA home loan, or another option, EDGEhomes is here to help you secure your dream home.
Looking to move soon? Explore our quick move-in options across Utah. Just starting the home search? Find inspiration directly from our idea gallery.
Our team is here to build your ideal home and help you prepare for the purchase. Let EDGEhomes be your next stop.