Benefits of a VA Home Loan
June 23, 2017

So many mortgage loan options! What’s best?

Start out by asking yourself how much house you can comfortably afford, given your income and what you have available for a down payment. Bankrate’s “How much house can you afford?” calculator will help you answer that question.

If you don’t have much money for a down payment, then you’ll want to look into Federal Housing Administration, or FHA, loans. This mortgage option allows you to get a loan with just a 3.5 percent down payment. Veterans can follow a similar path with a Veterans Affairs mortgage.

Conventional financing requires private mortgage insurance if the loan-to-value is greater than 80 percent. That means you’d need to make a 20 percent down payment to avoid PMI. Paying PMI isn’t the end of the world, but it is an added monthly expense in the early years of a mortgage. PMI typically goes away over time as you pay down your mortgage and build equity in your home.

If you plan on being in the home for a relatively short time, there’s another mortgage loan option to consider. I’d suggest a hybrid loan that roughly matches the time you expect to be in the home. A 5/1 adjustable-rate mortgage has a fixed rate for the first five years, and then the interest rate resets annually. As I write this, Bankrate’s national average for a 5/1 ARM is 2.72 percent, versus a 3.57 percent rate for a conventional 30-year fixed-rate mortgage. Don’t lock into a 30-year rate if you expect to be a short-timer in the loan.