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FHA vs. Conventional

Posted on September 10, 2015 by Ray Williams (NMLS #216267).

This is a very common question I get asked on a daily basis.  What is the difference between FHA & Conventional loans?  Instead of getting too technical I will keep it short and simple.

FHA is a Federally backed mortgage which allows for a lower down payment (3.5%) and lower credit scores.  In order to allow for the lower down payment, they require an upfront mortgage insurance premium (one time only) and a monthly mortgage insurance premium. Keep in mind that whether you are doing an FHA loan or Conventional, if you don’t put 20% down you will have mortgage insurance (monthly). 

Conventional mortgages are Fannie Mae & Freddie Mac.  Conventional mortgage rates are dependent on your FICO score, along with the mortgage insurance rate.  You must have a minimum FICO of 620 for a conventional mortgage.  There are options for lower down payments (3-5%) as well.

The main thing to keep in mind is that you can not compare mortgage rates and loans with others around you because what your mom, dad, neighbor, friend or co-worker may have will be uniquely different from what you may be offered.  Everyone has a different financial background, credit score, assets, etc.

There is a common misconception regarding FHA loans, it is that these loans are only for those who have low credit scores and that there are delays in these loans due to appraisals. None of these statements or presumptions are true.

Unfortunately, many lenders will deter away from FHA loans because the mortgage insurance is for the life of the loan.  This is true BUT my question is  “Do you know one person who has remained in their same mortgage since they purchased their property for the life of their loan?” The answer is NO.  Most buyers refinance within 5 years after their purchase.  If FHA is where you need to start in order to get into a home, then why wouldn’t you use it?

The decision of FHA or Conventional should be guided by your lender and they should help educate you as to which loan option is best for your needs and your current situation. Don’t let others deter you away from FHA, know your facts, ask questions and see which option is best for you.

If you would like to learn more or would like to get pre-approved for a home mortgage, please contact us.

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