FHA Loans vs. Conventional Loans

FHA Loans have been around for many years helping Americans afford to become first time homeowners and to avoid foreclosure. This has been done by guaranteeing a portion of the loan which in return makes the borrower much more secure. The benefits of having a Federally insured loan are immense, and make FHA Loans much more affordable and simpler to obtain then conventional loans. Here is where the two differ:

Down Payment

With a conventional loan, you can expect to pay upwards of 20% for the down payment on the house. This can be quite expensive, and prohibits a lot of American families from becoming homeowners due to insufficient savings. With an FHA Loan, you can qualify for the same amount of money and only have to pay 3% of the cost for a down payment on the property.

Private Mortgage Insurance

While it is possible in some rare instances to find conventional loans with a low down payment, the lender will generally compensate by requiring the borrower to pay for Private Mortgage Insurance (PMI). PMI is very costly and significantly raises the monthly payments on the mortgage. With an FHA Loan, you are already insured by the government so you will not be required to purchase any additional insurance on the mortgage.

Approval

With both conventional and FHA Loans, you will be required to submit your credit scores and debt-to-income ratio. Private lenders are often very strict in regards to credit scores, so if you have a low or no credit score there is a good chance you won’t get approved for a loan. The FHA is much more lenient. Even if you had some financial trouble in your past, you still have the chance to be approved for an FHA Loan.

Interest Rate

The interest rate for mortgages is a set number, but can vary depending on your financial situation and what type of mortgage you take out. Lenders will often charge a higher interest for riskier borrowers. With an FHA Loan, you are a very secure borrower so you will often get to take advantage of competitive interest rates.

Pre-approval

Getting pre-approved for an FHA Loan is incredibly simple. All you need to do is take a minute to fill out our secure online form and we’ll have you pre-qualified instantly!

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