FHA vs. Conventional Loans

Now that you are in the hunt for that perfect home, the most common financial question is around the differences between FHA vs. Conventional loans.  Tighter restrictions, closer evaluations, and lower limits have been the talk of many banks and brokers as well as concerns for most borrowers.

There are some big differences in the top two loan options, FHA and Conventional.  FHA loans require little down payment and are backed by the federal government.  On the other hand, conventional loans are backed by private entities and require a larger down payment.  Both types of loans provide for fixed as well as adjustable interest rates over the life of the loan.  Typically the buyer’s credit score, available down payment and financial risk to the lender weigh heavily on which option is selected.

Since the FHA is not the one to provide the loan but rather insure its payment to the lender it is much easier for buyers, especially first-time buyers, to obtain funding.  Even with lower credit scores and a bankruptcy, buyers still have the opportunity of purchasing a home with an FHA loan.  With a higher credit score and an increased available amount for your down payment, you may qualify for a conventional loan which usually processes faster and has the ability to build equity faster.  The amount of borrowers seeking a FHA vs. Conventional loan is less simply due to the fact that over the long run while your monthly payments may be lower with FHA your overall costs to own the home will be less on average with a Conventional loan.

Rules and guidelines are always changing and it is a good idea to speak with several people regarding your purchase funding. Research is the key to finding the best option when comparing FHA vs. Conventional loans. Don’t be fooled by biased information and work to stay focused on facts.  Keep in mind that not all banks and or brokers are licensed to provide all types of loans so do not be afraid to ask questions and look around.  Below is a quick comparison of the basic differences in the two types of loans.

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