Home Loan Types Explained | FHA, VA, USDA, & Conventional Mortgages

hey guys Melissa Blevins with MelissaBlevins.com your personal finance coach for the free-spirited nerd you probably
have been thinking about buying a house if you clicked on this video I wanted to
kind of go over a couple of the different loan programs and the
differences and whether or not you should buy a house at this particular
point in your life so let’s get started so one of the loan programs that is
pushed to first-time homebuyers is the FHA program because it’s a low
downpayment program you can have a pretty low credit score in order to
potentially be approved for an FHA loan but let me tell you the disadvantages to
the FHA loan program and why I would never ever recommend this to anyone okay
so the FHA loan program is a program that requires a minimum of three and a
half percent down payment it does charge mortgage insurance which is called PMI
private mortgage insurance and that insurance just protects the lender in
case you default so if you are making payments and then all of a sudden you
decide you want to stop making payments the bank will foreclose on you and they
will get their funds for for you defaulting so it really doesn’t benefit
you to have PMI or to have mortgage insurance on a loan it only benefits the
bank and it actually makes them money so having PMI on a mortgage is something
you want to avoid at all costs if you can the FHA loan program has the highest
cost PMI out of all of the other programs out there and it doesn’t drop
off after you’ve paid off 20% of the loan to value so let’s say you bought
the house at ninety six and a half percent of long to value because you put
three and a half percent down once you get it paid down to where you have 20%
equity in the house they don’t take the PMI off on an FHA
it’s there for the life of the lung so there’s literally no benefit to doing a
FHA loan and if you follow Dave Ramsey he would tell you that you are too broke
to buy a house if you can only do an FHA program with three and a half percent
down so that’s one of the reasons not to do an FHA loan another loan program
that’s widely used across the u.s. is called the USDA or rural development
loan the USDA loan is a 100 percent loan program based on income so if you meet
certain income and eligibility requirements and credit score
requirements you could potentially be approved for one hundred percent loan to
value of a home meaning you don’t have to take any money to closing sounds
awesome but you have no equity from day one and you’re inviting Murphy to visit
you you’re inviting the hot water heater to break the furnace to break the air
conditioner to break the septic system to backup now the USDA loan does have a
lower guarantee fee which is very similar to the mortgage insurance
premium I was just talking about on the FHA loan but the usda guarantee fee is
also for the life of the loan it’s not really private mortgage insurance as the
UH as the FHA loan is it is very similar but the way they’ve worded it has
basically made it for the life of the loan as well so you can’t get rid of
that either you never want to do a USDA loan unless well I really can’t see the
benefit to doing a usda loan and i will say i have done a usda loan and
shouldn’t have at the time in my life that I did so then you have the VA loan
for veterans and it’s very similar to the USDA program in that it’s one
hundred percent loan to value so you can finance the entire cost of a home
including the the VA funding fee so all of these have a different name so one of
them is PMI or mortgage insurance premium and the other one is a guarantee
fee and then now you have a VA loan funding fee which is an upfront fee that
you pay for the VA in order to have the loan I really don’t see much of a
benefit to the VA loan either because again you’re setting yourself up for
disaster by really putting 0% down again and you wouldn’t if you can afford to do
5% 10% 20% down on a conventional loan why would you use a VA loan just because
you’re a veteran there just isn’t enough benefit there for that so the last loan
product I want to talk about is the conventional loan product which is the
absolute best loan product that you can get and you can put as little as five
percent sometimes even three percent down on a conventional loan but I would
use caution if putting less than five ten twenty percent down because again
you’re putting yourself into a position with little to no equity and inviting
Murphy to come visit you sure the interest rates on loans are low right
now mortgage rates today I believe are around four percent for a 30-year
mortgage and around three and a half percent for a 15-year fixed so they’re
really great rates but you don’t want to finance everything you can into your
house right away you want to be able to put down as much as you possibly can you
want to be able to put down as much as you possibly can and finance it for the
shortest term possible because if you look if you pull up a loan calculator
online and you look at the amur to station calendar it will show you how
much you’ll pay an interest it’s usually at least double what you pay for the
house so for a $200,000 house you might end up paying $400,000 on a 30-year
fixed mortgage that’s insane so do yourself a favor do your homework I also
want to tell you really quickly about a way to avoid PMI some local community
banks and credit unions will offer lender paid mortgage insurance where you
basically buy up the interest rate a quarter percent or half a percentage
check with your local bank to see what their options are but let’s say the
rates today are three and a half percent for a 15-year fixed rate so you only
have ten percent to put down on the house well typically if you have ten
percent you’re going to have to pay PMI however you can talk to your lender and
see if they offer lender paid mortgage insurance and potential instead of
paying three and a half percent you might pay three point eight seven five
percent interest on the life of the loans but you avoid the PMI so it really
depends on how long you’re going to be in the home how long you plan on being
in the home and remember that usually when you say that you are going to be in
this house for your the rest of your life that is absolutely not true
so everyone says that this is my lifelong home no it’s not I can tell you
it’s usually not so I hope you guys have an awesome day
if you found some value in this video please give it a thumbs up and a quick
share because there are so many different loan programs out there and I
want you to be as educated as possible before you even sit down with a loan
officer so have a great day and thanks for watching don’t forget to subscribe

11 comments on “Home Loan Types Explained | FHA, VA, USDA, & Conventional Mortgages”

  1. Perfection Hangover says:

    Drop an emoji or one word describing how you feel about PMI, or private mortgage insurance, in home loans.

  2. Bevy Guillory says:

    This video was immensely helpful. I went to talk to a realtor yesterday, she asked what type of home loan we were looking for. I was slightly embarrassed because I had zero knowledge about home loans and what FHA, USDA and Conventional meant.

  3. 王朝愉 says:

    Hi. Would you recommend heloc over a conventional loan?

  4. Hugo Stiglitz says:

    I take it Murphy is your long lost uncle who you had to point out on a doll where he touched you? Do you have any idea how stupid you sound? I wouldn’t even take baking advice from this idiot. Who takes financial advice from someone that buys their minivan from Pedro’s buy here pay here? Don’t tell me that ol uncle murhp used to touch you in a van also?

  5. Matthew Mooar says:

    O value in this video

  6. StepzYT says:

    The part where you say that you can avoid the PMI by adding into the interest rate, what is that called? I was only looking into the FHA Loan option because of the 3.5% but I can put the 10% you were talking about for the conventional loan option but I don’t want to pay the PMI because that’s roughly an extra $200-400 that I’ve been seeing on the mortgage calculator on the condos I’ve been looking at. Thank you for your time!

  7. GiovanniV says:

    I am super confused by this video, are you a loan officer?

  8. Charmed 1 says:

    You can get rid of PMI on an FHA if you refinance or are st the 80:20 ratio on your loan. Correct?

  9. Dimi Trejo says:

    Thank you so much for taking the time to explain all of the loan options home buyers have!

  10. Humam Alobaidi says:

    What is the requirements to get a conventional mortgage ?

  11. Mer Ye says:

    Thank you! I was clueless.

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