Main Differences Between FHA Loan vs. Conventional Loans
November 22, 2021at10:30 PM
When you’re ready to purchase a home, you might be surprised to learn that there are many mortgage products. The kind of loan you qualify for depends on your financial situation and the property you want to purchase. An experienced loan officer, like those with the Atlas Crown Mortgage team, will help you qualify for the best terms possible. They’ll work with you to choose the loan product that best fits your lifestyle. One of the most common loan products you might hear about––especially as a new homeowner––are those backed by the Federal Housing Administration or FHA. This blog will discuss the differences between FHA loans vs. conventional loans and which is the best fit for your situation.
Conventional mortgage loans
Private institutions such as banks and credit unions issue conventional mortgage loan products. Each institution sets its own terms, depending on the loan product and the financials of the applicant. In general, a traditional loan requires anywhere between 3 to 40% of the home cost as a downpayment.
Most banks only offer conventional mortgages to individuals with excellent credit scores and history. You must have a score of at least 680, with no significant marks on your report.
The market sets the interest rate for conventional mortgages, and in general, they are offered as “fixed-rate.” A fixed-rate mortgage will keep the same interest rate for the life of the loan, regardless of how the market changes. When interest rates drop, homeowners have the option of refinancing at a lower rate.
FHA loans are federally insured and offered through financial institutions approved by the Federal Housing Authority. They are a loan product designed explicitly for homebuyers with low credit or without substantial savings.
The FHA guarantees that they will pay the loan terms if a borrower defaults. The terms of FHA loans are often more favorable to borrowers than conventional loans, with lower interest rates and financing up to 96.5% of the home’s purchase price.
Borrowers can use FHA loans to purchase single-family homes, multifamily buildings with four units, and even manufactured homes. Borrowers with credit scores less than 580 can still qualify for an FHA loan with a more substantial down payment. These loans make homeownership a reality for individuals in less-than-ideal financial situations.
Choosing between FHA loans vs. conventional loans for your mortgage
If you have a lower credit score or minimal savings, then an FHA loan may be the only mortgage product for which you qualify.
However, if you have a good credit score and at least a three percent down payment, you may be able to choose between an FHA loan vs. a conventional loan. Keep in mind these differences:
FHA loans require mortgage insurance––only a requirement if you put less than 20 percent down with a conventional loan.
Your FHA loan must finance your primary residence. In contrast, you can use a conventional loan for vacation homes and rental properties.
A conventional loan requires between 3 to 20% for a down payment; FHA loans need a minimum of 3.5% down.
Speaking with an experienced loan officer, like those with Atlas Crown Mortgage, is the best way to decide between an FHA loan vs. a conventional loan for your mortgage.
Atlas Crown Mortgage helps homeowners choose between FHA loans vs. conventional loans in FL, CO, CA, and Arizona.
We founded Atlas Crown Mortgage to provide an alternative to the high-pressure tactics used by banks to force homeowners into contracts that put them into impossible financial situations. Our primary concern is partnering with our clients to find loan products that help them achieve their goals without causing undue stress. By putting honesty and transparency first, we can help you find a mortgage with terms that fit your lifestyle.