FHA Loans vs. Conventional Loans: How to Tell the Difference
Overwhelmed with the prospect of buying a home? FHA loans and conventional loans are likely two sources of financing that you’ve considered. Let First Bank help you understand these options and come to a conclusion about which best suits your needs and budget. After all, choosing the right loan is key for timely, affordable payments.
Choose the Right Loan with First Bank
If you’re a first-time homebuyer or interested in purchasing your second home, there are different qualifications for each loan you should consider:
FHA loans—The FHA, or Federal Housing Administration, provides mortgage insurance on loans made by approved lenders. Single and multi-family homes in the United States (and U.S. territories) can qualify. First Bank can help put you on the right track to securing one of these loans. The advantages of an FHA loan can be:
- Owing a lesser down payment, as low as 3.5%.
- Enjoying quicker eligibility following a major credit issue such as bankruptcy or foreclosure.
- Allowing a co-applicant to help you get the loan, even if you don’t live in the same household.
Conventional Loans—A non-government insured loan that can be used with a second home purchase or an investment. Unlike FHA loans, conventional loans can require a higher credit score (often a minimum of 640), but they can have some major advantages for you. Conventional loans can allow:
- A risk-based premium, unlike FHA where one set premium rate is required from everybody, MI if applicable.
- Your monthly payments to be lower, even if you have a higher interest rate.
- Your loan to cover a higher loan amount.
- You to cover different types of loans like, investment or second home (FHA doesn’t do those types).
When considering an FHA loan versus a conventional loan, keep in mind that conventional loans are not affiliated or insured with the government like FHA loans. Additionally, an FHA requires mortgage insurance and conventional loans do not, unless the LTV exceeds 80%. There is an upfront MI premium (1.75%) that is required on FHA loans that is not required on Conventional loans.
For a more detailed look at FHA loans versus conventional loans, or assistance with applying, call or meet with your local mortgage loan professionals.
*Loans subject to credit approval.