How Mortgages Work

There are many types of mortgages out there and the VA Loan is arguably the most unique one on the market. The main types are conventional loans, FHA loans, USDA loans and VA Loans. Some are backed by the government and some aren’t.

What is a mortgage?

A mortgage is a loan given to a homebuyer through a bank or lender to purchase a home, in which that home is collateral held by title. The repayment terms of most home loans are typically between 15 and 30 years, with most banks and lenders requiring the homebuyer to bring a 20% down payment to avoid private mortgage insurance.

The down payment shows the bank or lender that the borrower is serious about the home purchase and helps them qualify for the loan. With most mortgages a down payment lowers the risk for the bank or lender. The VA home mortgage is one of the only home loans available today with no down payment required.

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Different Types of Loans

Conventional Loans

  • Non-government backed loan (federal government does not insure the loan)
  • Most banks or lenders require a 20% down payment to offset their risk
  • Although a 20% down payment is common, you can generally get away with a lower down payment
  • With a lower down payment, you will likely have to pay Private Mortgage Insurance (PMI)

FHA Loans (Federal Housing Administration)

  • Government-backed loan
  • Typically require a minimum of a 3.5% down payment
  • Lower down payment because the government has an insurance program known as MIP (Mortgage Insurance Premium)
  • MIP insures the loan against default and is run by the Department of Housing and Urban Development (HUD)
  • Homebuyers that use the FHA Loan will usually have to pay MIP for 11 years or 121 months.
  • Available to both first-time home buyers and subsequent-use home buyers

USDA Loans (United States Department of Agriculture)

  • Government-backed loan
  • Reserved for home buyers looking to purchase a home in a rural or under-populated area
  • Typically don't require a down payment, which means the homes are 100% financed
  • Like FHA loans, these loans also have MIP
  • This program is run by the Rural Housing Service (RHS), which is a part of the Department of Agriculture
  • Certain eligibility requirements to qualify include location, income and credit

VA Loans (Department of Veterans Affairs)

  • Government-backed loan
  • Reserved for active duty and veterans of armed or uniformed services
  • Certain surviving spouses are also eligible
  • No down payment required and no PMI or MIP
  • Most veterans will have to pay a Funding Fee (FF)
  • FF can be rolled into the loan or waived for veterans with qualifying service-connected disabilities
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I couldn’t be happier with my home purchase. Alix Clowser and the team were phenomenal. Communication was on point with rapid response.

I would definitely recommend Military Home Spot Lending for any lender needs.

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