FHA loans vs. Conventional loans

When we compare an FHA loan versus a conventional loan

, one of the biggest points of differentiation is the difference in down payment availability when buying a new primary residence. With an FHA loan, the down payment can be as low as 3%, while in the case of conventional loans it can be anywhere between 10% to 20%. Also, FHA loans allow a down payment gifted by a family member, government organization, or nonprofit agency, helping people with not enough cash in hand to acquire property.In some cases, current homeowners with FHA loans can qualify for refinance options that don't require any credit scores to be pulled during the loan process.In addition, the rules for borrowing are not as stringent as with a conventional loan.

A conventional loan can be a preferable option for people who have good credit and would prefer to stay away from PMI. The rates of the monthly mortgage insurance premium vary based on loan size, equity position, and the credit scores for the borrowers. FHA loan empowers buyers to keep the closing costs on the loan under tight control whereas the fees for conventional loans are less regulated. As an added benefit, FHA has set standards for property, which does not qualify for loans unless the minimum requirements are met. Other advantages of FHA include lower per month installments (PMI) and a lower lending limit.

The rates and terms of FHA loans can be lower than those for conventional ones. In addition, FHA home loans offer more variable options in terms of selection of the best-suited rate for the buyer and his income. With the help of adjustable rate mortgage (ARM), when during some period interest rates are low, the borrower can acquire mortgage finance at a more affordable rate because of its low initial rate.

The only drawback of FHA is that its loan limit is less than conventional loans. Also in case of secondary mortgages, they are crafted in a way that the interest rate is low but the borrower has to shell out a huge chunk at payoff or to refinance.

If you are looking for more information on about FHA and conventional loans and are seeking expert help on home financing and home loans, visit: www.nationwidemortgageconcepts.com/.

FHA loans vs. Conventional loans

By: Jon Irvine

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