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Hi, I'm Ella Gurfinkel, your host of the AskElla Show and senior loan officer at Fairway Independent Mortgage. On my podcast, I cut through the noise to bring you honest conversations about real estate, mortgages, and financial planning.
I interview industry experts to tackle everything from homebuying basics to complex topics like reverse mortgages, trusts, and market trends. With decades of experience, I'm passionate about dispelling myths and providing clear, actionable advice.
Whether you're buying your first home, refinancing, or planning for retirement, I'm here to help you make informed decisions. Join me for straightforward talk about real estate and beyond!
FHA, VA, conventional. Which mortgage should a first-time home buyer choose? Choosing the wrong loan program could cost you $50,000. FHA, VA, conventional. These three letters determine whether you pay mortgage insurance forever or get it removed, whether you need 20% down or zero, whether you qualify or get rejected. I'm about to decode the mortgage alphabet soup and show you exactly which program saves you the most money. Pick wrong and you'll be kicking yourself for 30 years.
Hi there, I'm Ella Gerinkle, senior loan officer with almost 30 years of experience and over 2,000 families served. I've closed thousands of FHAVA and conventional loans and I've seen people make expensive mistakes because they don't understand the difference. So today I'm breaking down each program so you can make the smartest choice for your situation. Let me tell you, here is what drives me absolutely bad [ __ ] crazy. firsttime home buyers walking into banks and getting pushed into whatever program makes the bank the most money, not what's best for them. I see people taking FHA loans when they qualify for conventional. I see veterans not using their VA benefits. I see borrowers with great credit getting stuck with expensive mortgage insurance they didn't freaking need. And here's the kicker. Big news just dropped. Fenny May eliminated the minimum 620 credit score requirement for conventional loans. Now, that changes everything, but most loan officers haven't even figured out what the hell that means yet. So, let me break down each program like your financial life depends on it because it does. FHA loans, let's refer to those as the starter option. Minimum down payment is 3 and a half%. credit scores as low as 580. Yes, you can technically go lower on the credit score all the way down to 500, but that requires 10% down. So, that 3 and 12% down minimum down payment option kind of goes out the window. debt to income ratio. It can go up to 46.9% for just the housing expense side of things and up to 56.9% for all of your monthly debt coverage. Now, if for some reason your loan gets downgraded from the automated system approval, the total scorecard that FHA uses for automated underwriting to a manual, then different debt to income ratio limits would apply. There are case by case instances. So, this is something that's more suitable for a one-on-one conversation versus one sizefits-all. Low limits as of right now in 2025 because 2026 has not been published yet vary between 524 and200 524,225
to 1,29750
depending on the area also depends if you're buying a single family home a duplex a triplex or a forplex the catch mortgage insurance premium MIP FHA actually hits you up twice for mortgage insurance premium. Instance number one, upfront. 1.75% of the loan amount gets added on top of your loan amount that you're borrowing. So let's say your loan amount is $100,000 even. add 1.75% to it and your final loan amount that you will be making payments on over the next x number of years is going to be $11,750.
Now, there is also an annual/monly mortgage insurance component to FHA. In technical terms, again, let's say on average, it's usually about 0.55 annualized. Again, how do you calculate that? You take your loan amount, multiply it by 0.55%, divide by 12, and there you have it. That's your monthly mortgage insurance that you pay in addition to the upfront one that got rolled into your loan. So, you see how they're hitting you twice duration lifetime if you put down less than 10%. I'm sorry, but that last part is crucial and cruel at the same time. Put down 3 and a half% on FHA and you're stuck with mortgage insurance premiums forever unless you refinance into a conventional loan. But here, consider this. Even if you put 20% down on an FHA loan, you're still paying mortgage insurance, both the upfront and the monthly, for only the next 11 years. And that's the part that is absolutely cruel to me. But it's a federalally insured loan. Now this is where I also get very very frustrated and not at the buyers. I get very frustrated at the amount of myths and disinformation out there in the marketplace, out there on the Arab webs, and pretty much freaking elsewhere that somehow the FHA loans are equated to the first-time home buyer loans. Like, please tell me how. Like, where does it say that FHA stands for firsttime home buyer? I mean, some of the letters are the same. Okay. F H A first home. What? FHA stands for Federal Home Loan Administration. It's actually a department under HUD, Housing and Urban Development. Has nothing to do with you buying the house for the first time, the 21st time, or 1001st time. You can use FHA over your lifetime as many times as you need. You just can't have two FHA loans at the same time in the same 100 mile radius. That's all. So again, first time home buyer and FHA like how and who and when made that connection and where did that complete misunderstanding originate? If you know, please drop a comment because I would love to know how that happened because a lot of people call me asking for FHA by name because they're buying their first home or because they're a first-time home on home buyer, therefore they should be getting an FHA loan. Moving on, conventional loans, the flexible option, minimum down payment 3%. With certain programs, yes, limitations apply. Yes, you have to be a first-time home buyer. Or if you are more than one buyer, meaning you and a significant other or an insignificant other, one of you has to be a first-time home buyer to be able to put only 3% down credit scores. Officially, Fanny dropped the 620 credit score requirement. We'll see how it pans out. Technically, practically, even though the minimum was 620, usually you want a higher credit score to go the conventional route. Debt to income ratio, again, official version is 45%. practical version if the automated system that we are obligated to use to underwrite preapprove etc. The conventional loans if it allows you to go all the way to 50% total debts meaning your housing payment and everything else you're paying for every month credit obligations then you're golden to 50%. And the loan limits for 2026 just got announced literally yesterday. The loan limits just went up from the $86,500
base in 2025 to just over $832,000. In the high-cost areas, we're mostly talking the coastal elite cities. Seattle, San Francisco, Los Angeles, San Diego, the higher price areas on the East Coast, Hawaii, DC, etc. Those loan amounts are actually quite a bit higher. Why don't I have committed to memory? The numbers just got published yesterday. And frankly, the majority of my clients are perfectly happy with the 832 loan limit. So, if you need to know what that number is exactly, comment below. I'll reply and let you know what that new number is. The advantage going conventional PMI, private mortgage insurance, the cost is between.20 and I've seen lower for that matter. Again, usually we're talking more or less averages right now to about 2% annually. Fully dependent on your credit score. if you're going to occupy the house, your down payment level, and believe it or not, on your debt to income ratio, and if there's more than one person on the loan, the duration of PMI on conventional loans, it's automatically dropped by your lender, by law, when your loan balance reaches 78% of the original purchase price, not the current market value. 78% of the original purchase price. Now, can you drop it sooner? Yes, but that's a whole other conversation. So, for good credit, 760 or better, 740 or better, PMI can be as low as 46%. Again, that's an annualized number, so that's a factor. So, consider that you're in the high credit score limits. Your MI can be ridiculously low. This is where you want to talk to a mortgage professional instead of doing the online sleuththing because even AI is not going to be able to tell you exactly what your mortgage insurance would be because it doesn't know your exact credit score, your exact debt to income ratio. So, it's a little more complicated than doing the search online. VA loans. The hero option. This is a loan that is essentially part of the benefit package for those who have honorably served in any branches of the military and protected our country. Hence the hero option. And the catch again is honorably served with honorable discharge. And the VA loan honestly is the best loan bar none every which way you want to slice it or dice it. Minimum down payment go zero credit scores. There's actually no official minimum but the lenders typically do want to see 620. Depends on the lending institution, depends on the company. I'd say more like 580. At least that's what we can do. And yes, there are options for lower credit scores and still to go zero down debt to income ratio. Well, this is where it gets a lot more fun because VA doesn't really have a debt to income ratio. And this is where so many people have argued with me over the years, especially after the 2007 through 2010 crash, that no skin in the game is what got us in trouble. Nope. Shitty underwriting standards is what got us in trouble. Actually, lack thereof. Actually, CRA being pushed down the throats of banks which opened up the doors to shitty underwriting standards. But if anybody wants an actual history on what happened and why it happened besides watching the big short, hit me up. I will tell you exactly how that happened from the historical perspective and a legal perspective. But I digress. How VA loans are qualified is incredibly real life because let's roll it back for a minute and talk about how FHA, USDA, conventional loans qualify you. We'll look at your gross pre-tax income if you're W2 employed. Now, let me ask you, when was the last time your paycheck was the full gross amount that you get paid monthly or weekly or bi-weekly, whatever? Never, right? Cuz you got taxes being taken out, state and federal. I mean, if you're like, you live in a state that doesn't have state tax coulds, but the majority of the states in the country do have an income tax. So, you've got feds and state taken off the top. You may be looking at your local county, city, whatever BS taxes on top of the feds in the state. You've got FICO, which is FICA, excuse me, which is your basically social security 1/2. You've got Medicare. You've got those are involuntary deductions. And then you got voluntary deductions like retirement, health insurance, and whatever other contributions you may choose to do for benefits. So at the end of the day, most people only take home, I'd say somewhere between on the bad side 50%, maybe even lower to somewhere maybe up to like 70%. If you're lucky. So riddle me this. how underwriting loans under the gross income DTI, debt to income ratio, is beneficial because we're basically qualifying you on the money you don't really get to see. And this one brings me back to VA. VA actually looks not at your gross income. I mean, it does, but it actually looks at the residual income. So what VA requires is that based on the region of the country, northwest, southwest, northeast, whatever, based on the region of the country because again in different regions of the country expenses and income levels are different that at the end of the day or in this case at the end of the month, you have enough money left over to cover your dayto-day day necessities. VA actually does consider whether you pay child care because that's an expense and it's a sizable expense. VA actually looks at the cost of maintaining the home. That becomes an expense. VA looks at your actual tax liabilities, i.e. tax deductions out of your checks every month. So really VA looks at whether you're able to maintain the housing payment based on the money that you have left over and how much money you have left over. So for case in point, if I were applying the traditional debt to income ratio rules to the VA loans that I've closed over the years, I've closed them almost as high as 70% debt to income ratio only because there is the requirement being met for the residual income based on the region, family size and VA being a zero down loan unlike any other loan. own during and after the crash during the foreclosure crisis outperformed all of them combined. VA had the lowest foreclosure rate out of any other loan type when people were getting forclosed right and left. And you know why? because it's underwritten to real life, not to an imaginary gross income effectively or imaginary debt to income limit imposed by the feds without any consideration given to how the real life works. Now, loan limits, it used to be that VA loans were loan limits were tied to the conventional loan limits. That has not been the case for about 10 years now. So, you can actually buy a $2 million home with zero down if you're qualified. That's it. If you have the full entitlement or if you have enough of the residual entitlement left. Yes, veterans. I'm talking your language right now. So, this is not meant to everybody else. You can buy a home with zero down. And frankly, you can actually have more than one VA loan and still get in with either zero down or damn near a zero down. VA loans do not have the PMI ever guaranteed by the government, yes, but there is no monthly mortgage insurance. There is, however, a VA funding fee. And the VA funding fee normally automatically gets wrapped into your loan. So, back to $100,000 loan example, you're borrowing as a veteran $100,000. And let's say the funding fee is 2.5%. I'm using round numbers, not necessarily the accurate number, but let's say it's 2 and 12%. Your final loan amount is going to be instead of 100K, it's going to be $102,500. Can you pay for it outside of the loan? Yes. Can you ask the seller to pay for it? Yes. But that funding fee is basically what goes to the government to guarantee the loan to not have the monthly mortgage insurance. Now, if you've served and thank you for your service and your disability, you have a disability that is officially connected to your service record as in service related disability. You don't have to be 100% disabled by the VA standards. Any percentage of service related disability on VA wipes out the VA funding fee. Something to chew on. NVA rates are typically better than conventional, meaning lower. Usually FHAVA, any of the GVY loans kind of run par parallel. So here's what's happening in the late 2025 that changes the game with Fanny dropping the 620 score requirement. Conventional loans are now accessible to more borrowers. So, this is actually huge because the conventional PMI can be cheaper for higher credit scores and can beat the FHA hands down. Here are the numbers to consider. About 825,000 FHA loans versus 490,000 VA loans were issued in 2023. Yes, unfortunately, there is no newer stats. FHA denial rate 13.6%. 6%. Conventional denial rate almost at a half 7.9 translation. If you can qualify for conventional, you're more likely to get approved and pay less long-term. So yes, you can choose FHA if your credit scores are I'd say below 660. Your debt to income ratio is high. you have very little down payment three and a half percent and can do a conventional 3%. Or maybe you had a bankruptcy a couple of years ago or some kind of a major credit event. FHA is your friend in that case, but I would call it a band-aid loan at that point because it's a short-term solution to today's need and it has the most underwriting of course. Now, why would you choose conventional? If your credit scores are 620 or better in reality 680 or better, if you have at least 3 to 5% down payment, if you want PMI that goes away, and if you want the most loan options and flexibility, then you would choose conventional. Now, VA, of course, if you're a veteran or active duty, duh, right? If you want zero down, if you want the lowest rates available, if you don't want to pay PMI ever, and here's a real example for you, 400k loan, 5% down payment, 720 credit score, FHA, you're looking at paying $1,847 a month, including mortgage insurance premium forever. Conventional $1,798 a month. PMI drops off in roughly 5 years. VA, if eligible, $1,756 a month, no PMI ever. Here is the pro move. Many smart borrowers start with FHA to get in the door, then refinance to conventional once they have 20% equity, meaning actually the home appreciated. You escape the lifetime MIP and you get better terms. Case in point, I did a loan for this amazing young couple in Hillsboro, Oregon, summer circa 2021. If I'm not mistaken, we not just did the FHA loan, we did FHA with a down payment assistance component to it. So, it was a zero down transaction. In 2 and 1/2 years, they did everything that I told them to do, credit score-wise, credit fixing wise, and raise their scores. The home appreciated, and we refinanced them out of that FHA, zero down into a conventional loan with a single premium, PMI, so there was no monthly mortgage insurance premium, and lowered their rate. Not only did we use FHA as a band-aid, we use it as a stepping stone because my amazing clients use it to get into a home with zero down again and refinance out of it in less than 3 years with the metro crap ton of equity that we used to get rid of the monthly MI and save them money. And now with the new conventional guidelines, you may not even need to do the FHA to conventional dance anymore. So more buyers can start with conventional right away. For veterans, VA is almost always the right choice. The only exception might be if you're making a huge down payment to avoid the funding fee, but even then, VA rates are usually low enough to make it worthwhile. So, the bottom line is the right loan program can save you tens of thousands of dollars, but the wrong one may cost you for decades. So, don't let some bank employee who doesn't specialize in mortgages make this decision for you. You need someone who knows every program inside and out and will recommend what's best for your situation, not what's most profitable for them. So, if you're ready to find out which program saves you the most money, book a chat with me. The link is below, and I'll analyze your specific situation and show you exactly what each program costs over time, so you stop guessing and you start saving.