Buying your first house is often equal parts exciting and terrifying. Becoming a homeowner means adding an asset to your portfolio that helps with building wealth. You won’t be throwing money away on rent anymore. Plus, there’s no landlord to call the shots on paint colors, fixtures, or anything else. 

All of that said, buying a house is one of the most expensive things most people ever do. The financial side of this shouldn’t be taken lightly. 

For most first-time homebuyers, getting into a house means getting a mortgage. You have options there. Before you start thinking about the loan term (how long you have to repay) and interest rate (fixed vs. adjustable), you need to decide on the type of mortgage you want. 

The majority of first-time homebuyers choose from one of three categories: conventional mortgages, VA loans, or FHA loans. 

The basics of VA, FHA, and conventional loans

The difference between these kinds of mortgages comes from the entity that stands behind them. Here’s your breakdown:

• VA loans: These mortgages get backed by the U.S. Department of Veterans Affairs (VA). 
• FHA loans: These loans have the backing of the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD).
• Conventional loans: These mortgages don’t have backing from any government agency.

At this point, you’re probably wondering what “backing” means. It affects lenders more than you, but you get trickle-down effects, so it’s important to understand. 

When a government agency backs a loan, they agree to help the lender recoup their losses if the borrower defaults. In other words, if you stop repaying your VA or FHA loan, the government steps in to help the lender get some of their money back. 

With a VA loan, the VA typically agrees to guarantee 25% of the loan amount. So lenders get certainty they’ll make at least 25% back. And they can usually recoup the rest by selling the house. 

With an FHA loan, it works a little differently. Instead of guaranteeing a percentage of the loan, the FHA insures the lender against losses. If the lender still has a negative balance after selling off the house, they can file a claim with the FHA to get all or part of that back. 

That’s all pretty technical, so why should you care? Because government backing lowers risk for the lender, and lenders love low risk. 

They love it so much they’re often willing to pass benefits onto you, the borrower. If you’re eligible, you can get a VA loan with a 0% down payment and you’ll probably score a lower-than-average interest rate, too. And FHA loans can be a big help if lenders see you as too risky to qualify for a conventional loan. 

Where to get conventional, FHA, and VA loans 

You get conventional, FHA, and VA loans from a mortgage lender. In other words, you don’t go straight to the VA to get a VA loan. And you won’t get an FHA loan directly from the FHA. There’s one rare VA exception for Native American Direct Loans, but in every other case, you need to find a mortgage lender. 

If you want a conventional loan, you can get that from almost every mortgage lender. VA loans and FHA loans require lenders to get approval from the government agency backing these loans. If you want a VA loan, for example, you’ll need to find a VA-approved lender. And FHA loans can only come from FHA-approved lenders. 

Deciding what kind of lender you need gets easier when you know what kind of mortgage you want. 

Comparing VA vs. FHA vs. conventional loans

As a first-time homebuyer, you’re probably doing what you can to make a smart choice about your mortgage. To help you there, let’s lay out some key factors behind VA, conventional, and FHA loans:

Deciding which mortgage is right for you

Generally, if you can qualify for a VA loan (meaning you’ve met the military service requirement or your spouse has), that’s your best bet. On top of the 0% down payment, VA loans come with benefits like lower interest rates and no need for mortgage insurance. 

If you can’t get a VA loan, compare FHA and conventional loans. FHA loans generally work best if you don’t have a strong financial profile. If you have a solid credit score, you might get a more competitive rate with a conventional loan. 

If you’re going the VA loan route, we’re here to help. At Rates.Now, we have rate tables showing what VA lenders offer today. We also specifically have VA rates for first-time homebuyers. Compare your options across lenders to find the best combination of a low interest rate, minimal lender fees, and other criteria that are important to you. 

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