Wednesday, December 16, 2015
Realtor 101: Comparison of Common Loan Programs

Comparison of Common Loan Programs

We're often asked to explain the differences between the most common loan programs. To help answer your questions, the following grid outlines a few general features of three popular loan types: Conventional Loans, FHA Loans, and VA Loans. It is important to note that all homebuyers have unique home financing needs. Your mortgage provider will make every effort to find the best loan program and pricing for each situation and to provide superior value.


  Conventional FHA VA
Minimum Down Payment 3% (can be homebuyer’s and/or gift funds) 3.5% (can be homebuyer’s and/or gift funds) 0% (as long as the sales price doesn’t exceed the appraised value)
Maximum Seller Assist 3% (< 10% down payment)
6% (> 10% down payment)
6% 6%
Mortgage Insurance (MI) Private Mortgage Insurance (PMI): Dependent on credit score, down payment, loan purpose, and loan term. Two forms of insurance: 
  1. Upfront Mortgage Insurance Premium (UFMIP): Factored at 1.75% of the base loan amount (can be financed in the loan); AND
  2. Monthly Mortgage Insurance Premium (MIP): Usually factored at 0.85% of the base loan amount.
Funding Fee: One-time, upfront charge that must be paid at closing but may be financed in the loan. Factored as a percentage of the loan amount, which varies based on the type of loan, the borrower’s military category, etc.
Potential Advantages
  • Mortgage insurance can be canceled once 2 years have elapsed and 20% equity is achieved.
  • Can use gift funds for down payment.
  • Less money out-of-pocket.
  • Lower credit score requirements.
  • Less stringent income requirements.
  • Can use gift funds for down payment.
  • May have lower MI costs.
  • No monthly MI required.
  • Little to no money out-of-pocket.
  • The seller can pay for some closing costs.
  • VA rules limit the amount charged for closing costs.
Potential Disadvantages
  • May have higher MI costs.
  • Higher credit score requirements.
  • More stringent income requirements.
  • MI included for life of the loan and cannot be canceled.
  • Upfront funding fee.
  • Veteran must be income- and credit-qualified.


Conventional sample loan scenario: $200,000 purchase price, $190,000 loan amount, 5% down payment, $1,277.94/month (PITI), 30-year fixed 4.0% interest rate, 4.938% APR. 
FHA sample loan scenario: $196,377 loan amount, 3.5% down payment, $1,274.81/month (PITI), 30-year fixed 4.0% interest rate, 5.191% APR. The MI requirements may change if the homebuyer is putting down more than 3.5% or desires a term less than 30 years. 
VA sample loan scenario: $206,600 loan amount, 0% down payment, $1,181.53/month (PITI), 30-year fixed 4.0% interest rate, 4.432% APR. 

All mortgage products are subject to credit and property approval. Rates, program terms, and conditions are subject to change without notice. Not all products are available in all states or for all amounts. Additional conditions, qualifications, and restrictions may apply. This is not an offer for extension of credit or a commitment to lend. Please contact Hamilton Mortgage for more information.


Mike Dudley Mike Dudley
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