Question

What are the advantages and disadvantages of purchasing a home with a

• (a) FHA-Insured loan
• (b) a VA-guaranteed loan
• (c) a Conventional loan

(a) FHA-Insured loan

(b) a VA-guaranteed loan

(c) a Conventional loan

Answer 1

A. FHA-Insured loan

Advantages

1)Smaller Down Payment

2)Flexible Qualification Guidelines

3)Lower Credit Scores and Debt Ratios

If your credit score is too low for a regular mortgage loan, you might still be able to qualify for a Federal Housing Administration-insured loan.

Disadvantages

1) pay two different insurance premiums

• There’s an upfront mortgage insurance premium (MIP), which is usually 1.75% of the base loan amount.
• Borrowers must also pay an annual premium, which can vary. The annual premium for most FHA borrowers is 0.85% of the base loan amount.

2) You’ll encounter some property restrictions.

The FHA program is managed by HUD, and HUD has some pretty specific rules about the types of properties that can be purchased. Forget about buying a vacation home with an FHA loan. That’s generally not allowed

3) Some home sellers shy away from FHA loans

some sellers avoid buyers who use them. This happens more often in hot real estate markets where sellers receive a lot of competing offers. This kind of stigma is often based on the advice — possibly bad advice — from real estate listing agents.

B).  VA-guaranteed loan

Advantages

1)100% financing, no down payment

2)No loan limit

3)No minimum credit score

Disadvantages

1)Funding fee

Generally, in order for the VA to guarantee a home purchase, it charges a funding fee, which is a percentage of the home price, to cover operating costs.

2)VA Loans Cannot be Used to Purchase Vacation Homes or Investment Property

3)Seller Resistance to VA Financing

C. Conventional loan

Advantages

1) Quicker Loan

2)No Limits

Disadvantages

1)High Down Payment

2)Closing Costs, Fees