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FHA vs Conventional

August 14, 2009 by ClariTree Team  
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fha tax credit sacramento real estate FHA vs ConventionalWhen you’re looking for new loan products, it’s important to understand some of the basics between FHA loans and conventional loans. Commission refers to any loan under the FHLMC and FNMA lending limits. Some other terms for conventional loans could be conforming, a paper, BC, A-, and other terms that mortgage brokers and lenders use in industry.

When people hear FHA loan, they typically think of a first-time home buyer loan. These days, FHA loans are more common than ever and are available for people who want to change their rates and term of their loan, or even get cash out when they  refinance.

The reason that FHA is so popular these days is that your credit score does not be nearly as good as it does with a conventional loan qualify for an FHA loan. Another great thing about FHA loans is the fact that the the down payment required to close loan is significantly less than a conventional loan.  An FHA loan down payment can be as little as 3% while a conventional loan needs about a 10% down payment to close.

Going with an FHA loan if you don’t have a credit scores can be significantly cheaper than going with a conventional subprime or BC loan.

The third great thing about an FHA loan is the fact that you can streamline your FHA loan into a new FHA loan in the future. What this means is that you can refinance into a lower rate FHA loan in the future with an easier process and less closing costs and may not even have to prove your income or get a new appraisal.

Your down payment for your FHA loan can also be gifted from another person. This can really help you get into a home or refinance if you don’t have a down payment.

Depending on your loan-to-value with either FHA or conventional loans, you may have mortgage insurance. This is always the case with an FHA loan. With a conventional loan, if you have 20% equity are more you’re not required to carry mortgage insurance.

One good thing about conventional loans is the fact that you don’t have what is called “upfront mortgage insurance premium” or MIP when you close a loan. This will typically run you about 1.5% of the mortgage value with an FHA loan. So, conventional loan closing costs can be quite a bit less expensive.

So being all said, FHA is a great program for those that cannot qualify for a conventional loan or do not have the down payment available for a conventional. Otherwise, if you do have the credit scores and the down payment, conventional is the way to go because of the less amount closing costs, and the availability not to have mortgage insurance every month tacked into your loan.

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61 Comments on "FHA vs Conventional"

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