For many people, understanding the many different home mortgage programs can be difficult especially since there are many different mortgage programs that a person can select from.
Two of the most common home loan programs are FHA home loans and Conventional Home Loans.
Many home buyers are unsure whether to go with a FHA loan compared to a conventional mortgage. Each borrower ‘s situation is different so what is good for one person might not be the best option for the other person.
It is important for the home owner to understand the differences between FHA mortgages and conventional home mortgage loans so that you are getting into the right mortgage loan for your particular situation.
For the most part, FHA is designed for a first time home buyers, but anyone can have an FHA mortgage if it is used to finance a primary residence. Conventional home loans can be used to purchase a primary, second or investment home. Both FHA loans and conventional mortgage loans can be used to purchase or refinance a house .
Down Payment Differences
FHA does require a smaller down payment, but the closing costs for an FHA home loan may be higher due to the upfront MI fee which is currently 1% of the loan amount. Conventional home mortgage loans do not have an upfront MI fee. The current FHA down payment minimum is at 3.5% down while conventional loans require at least 5% down.
Credit Score Differences
Credit scores have less impact on an FHA loan which can be great for someone whose credit score is between 620-680. Conventional mortgage rates vary due to credit score. The lower the score, the higher the rate on a conventional mortgage loan. Also, if you credit score is below 680, you might not be able to get approved for Private Mortgage Insurance which is required if your down payment is less than 20%.
FHA does require you to escrow for taxes & insurance while conventional loans do not if you have at least 20% down.
Home Mortgage Loan Size Differences
FHA home limits are set by HUD, and range from the high 200’s to the low 400’s depending on the county. Conventional mortgages have a maximum mortgage limit of $417,000 for most states.
Debt to Income Ratios
FHA loans will allow up to 49% for housing and debt where conventional loans generally allow up to 45%. So the underwriting may be more lenient.
There are many factors to be considered in deciding on a mortgage loan program. It is important to contact a loan mortgage advisor to see which mortgage program best meets your needs and will give you the lowest interest rate and payment!