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Are you trying to decide between an FHA and a conventional mortgage for your home loan? The easy answer is to find the loan that best fits your particular situation and needs! Here’s information to help you with the pros and cons of FHA loans and conventional mortgages. We’ve also included a comparison chart between the two types of loans at the end of the blog. Ready to purchase a home? Start NowFHA LoanFHA loans are mortgages insured by the U.S. government’s Federal Housing Administration. The insurance allows lenders to offer qualifying terms that are less strict than conventional mortgages. That means that homebuyers (particularly first-time buyers) can more easily qualify for a mortgage. FHA loan terms include:
FHA loans were designed to help lower- to middle-income buyers become homeowners, so there is a limit on loan amounts (depending on location). A loan also comes with some other conditions. For example, 2021 FHA rules require homeowners with certain loans to purchase mortgage insurance (MIP), which protects lenders against a loan default (nonpayment). Here’s a short video about how FHA loans work. FHA Loan Eligibility RequirementsHere are 2021 FHA loan eligibility requirements you have to meet to get an FHA loan, as summarized by the money advice website Nerdwallet.com:
Remember that FHA insures loans for the lender. You still have to work with an FHA approved lender to qualify for a home loan. FHA Loan: ProsHere are some distinct FHA home loan advantages:
FHA Loan: ConsHere are some FHA home loan disadvantages:
An FHA loan calculator can help you estimate your monthly payments and decide your next steps. Conventional mortgages are established financial vehicles for purchasing a home with a down payment and an amortized home loan (reducing the loan with regular payments over time). Conventional loans are held by groups such as banks, credit unions, and savings and loan associations. Homebuyers can get a loan from any one of these institutions or work with a mortgage broker that writes the loan and funds it initially before selling it to another institution. Traditionally, getting a conventional mortgage meant paying 20% of the home price as a down payment and borrowing the rest in a 30-year mortgage. Conventional mortgages are now much more flexible, and lenders can sometimes give you a mortgage that requires a 10% or less down payment with varied loan lengths and terms. There are many types of conventional loans and they can’t all be described here. However, 20% down gives buyers quite a lot of skin in the game – a sizable amount of home equity that makes it far less likely they will default on mortgage payments. That gives buyers an advantage with lenders for getting low interest rates and favorable loan terms. And lenders may require borrowers who pay less than 20% down to have private mortgage insurance (PMI) to protect the lenders’ investment. Conventional mortgages are not backed by the government the way FHA loans are, so private mortgage holders protect their investments with stricter eligibility requirements than FHA loans. Conventional Loan Eligibility RequirementsThese conventional loan eligibility requirements are a basic guide. You can read more here.
Conventional Loan: Pros
Conventional Loan: Cons
A conventional mortgage calculator can help you understand the total cost of your loan and your monthly payments. Ready to purchase a home? Start NowCompare FHA Loan and Conventional Home LoansCompare an FHA loan and conventional mortgages. Then see which loan is the better fit for your particular circumstances and financial situation right now.
Make a Final Decision: FHA or Conventional MortgageYou’ve done your homework and learned the difference between FHA loans and conventional mortgages. Take the next step and work with a loan officer who asks the right questions – like the knowledgeable, experienced ones at Capital Bank – and can find the loan that fits you best. Then you’ll have everything you need to make your final decision! |