A Guide to FHA vs Conventional Mortgages

Two of the most popular types of mortgages are the Federal Housing Administration (FHA) mortgage and the conventional mortgage. Understanding the differences between two types of loans can help you decide what best fits your needs.

What is an FHA Mortgage?

An FHA loan is a home loan that is insured by the Federal Housing Administration (FHA). It’s designed to provide borrowers with more lenient borrowing requirements than conventional mortgages, such as lower down payments and credit scores. Borrowers who use an FHA loan must pay an upfront mortgage insurance premium (MIP) which varies depending on the amount borrowed and other factors. They also have to pay annual premiums as part of their monthly payment throughout the life of their loan.

• Advantages: Lower down payment requirement; less stringent credit score requirement; fixed interest rate; available for buyers with lower incomes or those with less cash savings; MIP can be canceled in certain circumstances.

• Disadvantages: Higher monthly payments due to MIP; limited selection of lenders since not all lenders offer FHA loans.

What is Conventional mortgage?

A conventional mortgage is one that is not backed by any government agency, such as the Federal Housing Administration or Veterans Administration. It tends to come with stricter lending standards than other types of loans, such as higher credit scores and larger down payments compared to its government-backed counterparts like FHA loans. The interest rates for conventional mortgages tend to be lower than those for other types of mortgages, so they are often favored by borrowers who plan to keep their loan for many years or have good credit scores but lack sufficient funds for a large down payment.

• Advantages: Lower interest rates; higher loan amounts allowed; more flexible repayment options; no additional insurance premiums required; more lenders offering these loans compared to FHA loans.

• Disadvantages: Strict lending criteria means qualifying can be difficult; higher down payment requirement; higher credit score requirements may exclude some potential borrowers from qualifying.

If you want to learn more about our FHA or Conventional loans contact me today.

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