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