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FHA Loans Vs. Conventional Loans – What’s the Difference?

Shopping for a home and looking for the right mortgage loan? You may have heard about FHA loans, which differ from conventional loans in several ways. Learn about the differences between FHA loans and conventional loans, so that you can make the right choice for your new home purchase.

What is an FHA loan?

FHA loans are mortgages that are insured by the United States government through the Federal Housing Administration (FHA). The FHA backs you for the amount of the loan, and you pay mortgage insurance to protect the lender from default. The FHA does not lend you the money – they just insure the mortgage for the loan’s amount, which protects the lender in case you default.

The government’s backing makes the loan more secure for the lender, which allows FHA loans to feature attractive interest rates and less rigid qualification requirements. FHA loans can be smart choice for first-time homebuyers, homebuyers with less-than-stellar credit scores, and homebuyers who haven’t had a chance to save up a big down payment. You can also qualify for an FHA loan one year after Chapter 13 bankruptcy or three years after a foreclosure. It’s also easier for a relative to gift you the down payment amount with an FHA loan.

In general, the benefits of an FHA loan include:

  • Lower down payments, as low as 3% of the house’s purchase price
  • Lower closing costs
  • Easy credit qualifying

What is a conventional loan?

Most other mortgage loans are conventional loans. Conventional loans usually – but not always – require the homebuyer to have a larger down payment and higher credit score. Conventional loans are available from practically every lender in the nation, which makes them easy to shop around. If you pay at least at 20% down payment, you won’t need to purchase mortgage insurance.

Generally speaking, the benefits of a conventional loan include:

  • Mortgage insurance generally not required
  • More loan options from different banks
  • Can be used on all property types, including condos
  • No maximum loan limits

Which type of loan is right for me?

When determining which type of mortgage loan is right for you, you’ll need to consider the following:

  • Your credit score
  • The amount you have saved up for a down payment
  • Closing costs and your ability to pay them
  • What type of property you are purchasing
  • Mortgage insurance
  • The price of the home you are buying

How can I find out more?

Please contact one of the experts at Villa Medici today to learn about the different types of mortgage loans, and to discover which one is right for you. We make the home buying process as easy as possible, with straightforward information and guidance every step of the way. Let us show you how simple it can be to own a beautiful new luxury townhome at Villa Medici!

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