Mortgage professionals can help you decide on conventional or FHA loan decision

Mortgage professionals are a great resource when looking for a home mortgage. They walk you through the entire process, but they also need to educate the prospective homebuyer about the different loan packages available. One of those areas is the conventional loan program versus the FHA loan program; Many have heard the different terms, but may not understand that there is a difference between the two types of loans. This article takes a look at the main differences between the two.

The first difference a consumer will notice is that the FHA loan requires a lower down payment on the mortgage compared to a conventional loan. The FHA minimum down payment is 3.5% compared to a minimum of 10% for a conventional loan. As part of the down payment, the FHA program will allow a consumer to accept a gift to cover the down payment, but conventional lenders generally will not. A key to both types of loans is that having less than a 20% down payment requires paying mortgage insurance to help lenders recover some of the money in the event of a default. This private mortgage insurance (PMI) will definitely increase your monthly payment, so keep that in mind when calculating your monthly budget. The good news is that when you’ve reached 20% equity in your home, you can apply to cancel PMI. Doing this can save the homeowner $50-$100 a month.

FHA loans also have more relaxed credit guidelines compared to a conventional package. The FHA program may be the one for those who have minor credit problems compared to conventional loans where credit scores can significantly affect interest rates based on scores below 720. Please note that these lenders have different standards for your court. it’s for credit scores.

FHA loans are typically 30-year mortgages and a homebuyer will not find the flexibility of options that a conventional lender can offer to those who qualify. These options can include different terms of 10 to 30 years and adjustable rate mortgages (ARM). It’s also worth noting that FHA loans have loan limits set by area and are typically less than what one would find with conventional loans. What this translates to is that if someone is trying to get an FHA loan where the mortgage exceeds the limits, the only options are to provide a larger down payment or take out a conventional loan.

While there are other differences between the two types of mortgages discussed here, the main points are listed above and can help with the initial decision-making process when you sit down with mortgage professionals. Educating yourself is the key to making the right decision when trying to decide on the type of loan that makes sense for you.