Conventional loans and Federal Housing Administration (FHA) loans are both popular mortgage options for homebuyers in the United States. While they may seem similar on the surface, there are actually a number of key differences between the two that potential borrowers should be aware of before making a decision.
One of the main differences between conventional loans and FHA loans is the credit score requirement.
In general, conventional loans have stricter credit score requirements than FHA loans.
To qualify for a conventional loan, borrowers typically need a credit score of at least 620.
FHA loans are often available to borrowers with credit scores as low as 500.
FHA loans are a great option for borrowers who have a lower credit score or who may have difficulty qualifying for a conventional loan.
Another difference between the two types of loans is the down payment requirement.
Conventional loans generally require a larger down payment than FHA loans.
For a conventional loan, borrowers typically need to put down at least 3-5% of the purchase price of the home.
FHA loans only require a minimum down payment of 3.5%.
FHA loans a more affordable option for borrowers who have limited savings or who may have difficulty coming up with a large down payment.
In terms of mortgage insurance, conventional loans and FHA loans also differ.
Conventional loans require private mortgage insurance (PMI) if the borrower puts down less than 20% of the purchase price of the home.
FHA loans require mortgage insurance premium (MIP), which is a type of insurance that is paid for by the borrower and is required for the life of the loan.
MIP is typically more expensive than PMI, so this can be an important factor to consider when deciding between the two types of loans.
One other key difference between conventional loans and FHA loans is the type of property that can be financed.
Conventional loans can be used to finance a wide range of properties, including single-family homes, multi-family homes, and even investment properties.
FHA loans are specifically designed to finance the purchase of owner-occupied primary residences.
This means that FHA loans are not typically an option for borrowers who are looking to buy an investment property or a second home.
Conventional loans and FHA loans are both popular mortgage options in the United States.
While they have some similarities, there are also a number of key differences between the two, including credit score requirements, down payment requirements, mortgage insurance, and the type of property that can be financed. Potential borrowers should consider these factors when deciding which type of loan is right for them.
Still have questions about conventional or FHA loans? Let's talk or you can download my buyer's guide today on Amazon.
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