Conventional loans are actually any type of creditor agreement that are not financed by the Veterans Administration (VA), or supported by the Federal Housing Administration (FHA). In general, all conventional loans are protected by the government sponsored entities such as Fannie Mae (FNMA) and Freddie Mac (FHLMC).
There are different types of conventional loans that have their own peculiarities. Conforming and nonconforming types of conventional loans are the most common kind of subdivision. Conforming loans have to meet the guidelines set by Fannie May and Freddie Mac. One key feature is that the loan amount can not exceed the maximum loan limit set by Fannie and Freddie.
- The fact that the creditors can actually keep the loan in their own portfolios and in this way they provide themselves with more flexibility concerning the loans as it must not take any other direction when it comes to some other borrowers.
- The creditors are free to add or on the contrary eliminate some of the fees on the loans.
- In the case when a person who is willing to get a loan does not have all the possibilities to do that, the creditor has the opportunity to self-insure the loan at the same time increasing the interest rate so that to recompense for the risk he or she takes.
A VA loan is a mortgage loan guaranteed by the Veterans Administration. It was created in 1944 and signed into law by President Franklin D. Roosevelt. A VA loan provides veterans and/or their surviving spouses with a federally guaranteed home with zero down payment. The program, also referred to as the GI Bill, has been highly successful and has helped millions of American veterans and their families acquire a home.
- Borrower must have a Certificate of Eligibility from the VA longer processing time.
- Borrowers are required to make a one-time funding fee based on loan amount and applicant’s service length.
- Closing costs are paid by the lender and the seller who may not want to pay them.
- No down payment
- VA does not require private MIP
- Limit on the amount of origination fees and closing costs that the lender can charge.
- Limit also placed on appraisal fees.
The Federal Housing Administration was created in 1934 as an effort to bolster homes sales during the Depression. By financially guaranteeing loans the FHA lifts much of the risk of non-payment and foreclosure from private lenders. It is important to remember that the FHA is not a lender; they just guarantee your loan.
- Down payment required.
- Higher MIP than on conventional loans.
- Loan Limits are lower than conventional.
- MIP required regardless of the Loan-to-Value (LTV).
- Bankruptcy not an automatic disqualification.
- Less stringent credit requirements.
- Lower interest rates.
- Down payment is less.
- Lower mortgage points and other closing cost requirements.
- Resale can be made quicker.
- Is backed by the U.S. government.