There are many different types of financing available to those looking to purchase a home or refinance their mortgage. The key to finding the right loan for a homeowner’s individual situation is knowing what he or she needs from their mortgage and can afford. Homeowners should research the differences between what FHA loans and conventional loans have to offer to determine which financing option is best for them.

Unlike conventional loans that typically require a down payment of at least five percent (although most are actually higher), this type of loan does not require any down payment. Borrowers can be relieved to know that they will not have to put down a large sum of money on a new house and can instead save the money or use it for other expenses. In addition to having no down payment, VA mortgages also do not require any mortgage insurance. Without mortgage insurance, borrowers will have a lower monthly mortgage payment and more money that they can use for home repairs or maintenance, debt repayment, or personal expenses.

Conventional loans are not insured by the government, so lenders mitigate their risk by imposing tighter qualification standards. These loans tend to have higher interest rates than FHA loans because the rates are more likely to be driven by a borrower’s credit scores and other risk factors. With a conventional loan, an applicant needs to have a good credit score and income to receive competitive loan terms. These loans do not have to be used only on primary residences, but can also be used on investment properties. The down payment on conventional loans tends to be higher, with the requirement currently set around 10% for most loans. Applicants will need to have a credit score of 660 or higher to be eligible and, in most cases, will need a 700 to receive competitive interest rates. There is no upfront mortgage premium requirement, but there will be monthly mortgage insurance if the borrower’s loan-to-value ratio is greater than or equal to 80%. There are refinancing options with conventional loans, but the amount a homeowner can refinance is only 80% for a cash out and 95% for a non-cash out, compared to 85% and 97% respectively for FHA loans. There is also no streamline refinance option available.

An applicant’s credit history will not affect their ability to receive a low interest rate. Because of the more lenient eligibility requirements, more potential borrowers can be eligible for this type of financing than for other types of home loans. One requirement of the VA is that borrowers have no delinquent payments for at least the twelve months before their loan is approved. Although conventional loans are not government guaranteed, VA home loans are guaranteed by the Department of Veteran Affairs at no cost to the borrower. This allows the VA lenders to offer low mortgage rates.

This type of home financing offers numerous benefits that homeowners may not be able to receive with a conventional loan. These loans do not require a down payment or mortgage insurance and they tend to have lower rates than other types of home loans. With current interest rates so low, now is a great time to consider a VA loan.

Learn more about Obama Mortgage Relief Plan Qualifications.