How to Compare Mortgages

Learn More About Comparing Mortgage Loans and Rates

When you are buying a house, it can be difficult to understand the different loan types and rates. The jargon can make it confusing to figure out how mortgages work, as well as comparing loan types in order to pick the one that’s right for you.

At Freedom Mortgage, we can help you buy a home with a Conventional, FHA, VA, or USDA loan. Here are some important things to know about these four types of mortgages!

Compare Mortgage Eligibility

Most homebuyers can apply for Conventional and FHA loans. You’ll need to meet your lender’s credit, income, and financial requirements in order to get your mortgage application approved, but most people are eligible to apply for a mortgage to buy a home with these loans.

VA and USDA loans are different. Only Veterans, active-duty military personnel, and surviving spouses are eligible to apply for VA loans. With USDA loans, the location of the house determines whether or not you are eligible to apply. The home must be in an approved rural or suburban area if you want to buy it with a USDA loan.

Similar to other mortgages, you’ll need to meet your lender’s credit, income, and financial requirements to get your application for a VA or USDA loan approved.

Compare Property Types

The next thing to understand is what kind of house you can buy with the loan. You can buy a primary home—that is, the house where you live most of the time—with Conventional, FHA, VA, and USDA loans. The rules are different when you want to buy a vacation home or investment property. You can only buy these types of houses with a Conventional loan.

Compare Minimum Down Payments

Conventional and FHA loans require a minimum down payment. You can often get a Conventional loan with a down payment as low as 5% of the purchase price while it’s possible to get an FHA loan with a down payment as low as 3.5%.

VA and USDA loans often do not have a minimum down payment requirement. This means that if you are approved for a VA or USDA loan, you may be able to buy a house without making a down payment.

Compare Minimum Credit Scores

Conventional loans often have higher minimum credit score requirements compared to VA and FHA loans. This means that when you have a lower credit score, it may be easier to qualify for a VA or FHA loan. To learn more about Freedom Mortgage’s current minimum credit score requirements, see our article on credit scores to buy a house.

Compare Mortgage Insurance Costs

It’s a good idea to compare the mortgage insurance costs of different loans because these costs can have a big impact on your monthly mortgage payment.

Conventional loans have more flexible mortgage insurance requirements compared to other loans. It is possible to avoid paying for mortgage insurance when you make a down payment of 20% or more with a Conventional loan. It is also easier to stop paying for mortgage insurance. Once your home’s equity reaches 20%, you may request that your lender cancel your mortgage insurance payments if certain conditions are met. In addition, private mortgage insurance (PMI) is canceled automatically once you’ve reached 22% equity (if your mortgage payments are current).

FHA loans are different. First, you’ll pay a one-time, upfront mortgage insurance premium. Conventional loans do not have this upfront fee. You’ll also pay monthly mortgage insurance premiums with an FHA loan for a required period of time depending on your loan amount and Loan to Value (LTV) ratio.

As a result, compare the costs of mortgage insurance when you are choosing between a Conventional and FHA loan. Learn more about the differences between Conventional and FHA mortgage insurance.

USDA loans have mortgage insurance costs similar to FHA loans. There is both an upfront cost and a monthly payment. Note that these are called "guarantee fees" rather than "mortgage insurance."

VA loans have an upfront mortgage insurance fee called a "funding fee." When you buy a home with a VA loan, you’ll most likely have to pay this fee. There are no monthly funding fee payments with VA loans however, which help make these mortgages more affordable.

Compare Mortgage Interest Rates

For many homebuyers, the interest rate they pay has the most influence on the loan they choose. The higher the interest rate, the more money you will pay in interest over the life of your loan.

When you are comparing mortgage rates, it’s important to understand two things. The first is that the mortgage rates you see advertised may not be the same rate that you are offered. That’s because your rate is affected by your credit, income, finances, loan amount, and other factors. You may be offered a rate that is higher or lower than the rates you see advertised. As a result, you’ll want to speak to a lender, like Freedom Mortgage, in order to understand the rate you may qualify for.

The second thing to understand is that you’ll want to compare the annual percentage rates—or APR—of different mortgages and not just the interest rates alone. That’s because APR includes the costs associated with getting a mortgage, such as lender fees or discount points. Comparing APRs makes it easier to compare different rates in an "apples to apples" way. To learn more, read our article on mortgage rate versus APR.

Compare Mortgage Refinancing Options

It’s a good idea to understand your refinancing choices when you're choosing a mortgage. Conventional loan refinances are sometimes called "full-document" refinances, because you will need to provide a new set of financial documents whenever you want to lower your interest rate.

FHA, VA, and USDA loans have "streamline" refinancing options. This means that you could refinance with less paperwork, which can make lowering your interest rate easier. You can’t change loan types with a streamline refinance. For example, you can only streamline refinance an old FHA loan into a new FHA loan. By refinancing, the total finance charges may be higher over the life of the loan.

If you’d like more personalized information, contact a Freedom Mortgage Loan Advisor today!

Last reviewed and updated August 2024 by Freedom Mortgage.