Comparing Portfolio, FHA, VA, and Conventional Loans for Attorneys

If you are a newly degreed attorney beginning a search for your first home, you may find loan choices to be confusing. What loan type is the right one? Attorney Mortgage can help with these decisions and has access to all of the loans below. 

The top three options are conventional loans, FHA loans, and VA loans. Portfolio, FHA, VA and conventional loans each have its benefits and drawbacks, but the right choice depends on your financial status, credit score, and several other factors. 

What is a Portfolio loan?

A portfolio loan is a loan that a lender will keep in their portfolio, instead of selling to the secondary market (i.e., Fannie Mae/Freddie Mac/FHA/VA). They usually offer more flexible underwriting standards. A primary reason that these lenders keep the loans in their portfolio is they usually do not conform to the strict secondary market eligibility guidelines. The 100%, no money down and no PMI Attorney loan is a prime example of a portfolio loan. Fannie Mae, Freddie Mac, and FHA all require at least a 3% down payment and payment of PMI.

What is an FHA loan?

An FHA loan is backed by the Federal Housing Authority (FHA). However, the administration doesn’t fund the loans. In fact, the loans are insured by FHA but created by FHA-approved lenders and are protected in the event the borrower goes into default. An FHA loan cannot be used for secondary residences or investments. It can only be used for a primary residence. 

What is a Conventional Loan?

Conventional loans are offered through banks, lending institutions, and credit unions. These loans are not protected by FHA – however, some loans may be purchased by a federally sponsored program. The loan, known as a conforming loan, must meet the requirements of the Federal Housing Finance Agency. Subprime loans or loans of higher amounts are known as non-conforming loans. A conventional loan can be used for property other than a primary residence. 70% of all conventional loans are held by Fannie Mae and Freddie Mac. 

What is a VA Loan?

A VA loan is also created through a bank or other lender organization but is government-supported. The United States Department of Veteran Affairs offers a partial guarantee for loans that are offered to service members, veterans, and surviving spouses. VA loans may be used to refinance a mortgage on a current home, or a mortgage on a new residence. VA loans are not available for second homes or investment homes. 

Which One Is Best?

The right mortgage is the one that fits your individual circumstance. Attorney Mortgage can help you find a mortgage that fits your needs as a newly degreed attorney, but here are some factors that will play into your decision:

How much can you offer as a down payment? 

• Attorney Mortgage offers a portfolio loan where an attorney would not have a minimum down payment and would not have to pay PMI.
• FHA loan down payments typically require a minimum down payment of 3.5% of the loan amount. But you are also required to pay a premium payment of FHA mortgage insurance of a percentage of the loan amount, and this insurance remains in place for the life of the loan. If you offer a down payment of 10% or more, you are allowed to drop the mortgage insurance after you have made payments for 11 years. 
• Conventional loans can be found for a minimum of 3% down. But you will be required to pay for private mortgage insurance (PMI) if your down payment is less than 20%. Unlike FHA mortgage insurance, you are allowed to drop PMI when you reach a loan-to-value ratio (LTV) of 80%.
• If you are a service member, veteran, or eligible spouse, A VA loan requires no down payment, and no mortgage insurance. However, there is a funding fee that is based on a percentage of the loan amount.

What is your credit score? 

• Attorney Mortgage’s portfolio loan requires a 700 credit score.
• FHA’s credit score requirements depend on how much you can offer as a down payment. If your down payment is higher, you could be approved for a loan with a credit score in the low 500s. But a down payment of 3.5% or more will require a higher credit score, typically 580 or higher. 
• Individual lenders have more flexibility when it comes to credit history. But your chances for better loan rates and terms are available for those with credit scores that are higher than 660. If you are an attorney buying a home for the first time, Attorney Mortgage can offer rates specific to your profession and your current situation. 
• If you qualify as a veteran, active military or eligible spouse, VA loans do not have a minimum credit score requirement. However, participating lenders may have a credit score requirement for approval of the loan. Attorney Mortgage will help you determine your credit score and navigate this requirement during the lending process. 

How much debt do you have? 

• For an FHA loan, your debt-to-income ratio (DTI) is typically required to be 43% or less if your credit score is lower than 580. If you have a credit score that is higher, the maximum DTI is higher, up to 56.9%.
• Conventional loans typically ask for a maximum of 45% DTI to qualify. But individual lending institutions have more flexibility and could offer loans if you have a DTI that is higher. 
• VA loans can vary on required DTI, but they usually accept a DTI limit of around 41%. Ask Attorney Mortgage for advice concerning VA loan qualifications. 

What’s my final cost? 

You may think that your best choice depends on the amount of down payment you have available, or which loan will allow you to stay within a guideline for monthly payments. But it is important to consider how much a loan will cost you in the term of the loan, how long you plan to keep the loan before paying it in full or refinancing, and several other personal events or conditions. 

Purchasing a home for the first time can be challenging but rewarding. If you are a newly degreed attorney, an established attorney looking for a home, or if you are ready to re-finance your home, Attorney Mortgage offers all of these loans and is here to help you navigate the loan process. Contact us or call (816) 379-6264.