Conventional Mortgage, VA Loan and FHA Loan

Conventional Mortgage

A conventional mortgage is a loan obtained through a lending institution, such as a bank or trust company; this type of loan is neither guaranteed by the Veterans Administration (VA) nor insured by the Federal Housing Administration (FHA). A conventional mortgage does not exceed 75% of the lending value of the property. The term conventional is used because it conforms to acceptable Lending to Value (LTV) margins.

Veterans Administration (VA) Loan

VA loans are made by a lender, such as a mortgage company, bank or other lending institution. Veterans Administration guaranty on the loan protects the lender against loss if the payments are not made, and is intended to encourage lenders to offer veterans loans with more favorable terms. The amount of guaranty on the loan depends on the loan amount and whether the veteran used some entitlement previously. VA will appraise the house to determine its reasonable value in the housing market at the time the appraisal is made. If the home is to be built (new construction) VA requires compliance inspections to see that the house meets acceptable standards, and conforms to the plans and specifications the VA appraisal was based on.

Federal Housing Administration (FHA) Loan

Loans must meet certain requirements established by Federal Housing Administration (FHA) to qualify for insurance. If the loan meets these qualifications the FHA mortgage insurance provides lenders with protection against losses as a result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner’s default.