subject: Which Should I Choose - Fha Vs Conventional Loan [print this page] You are ready to apply for a mortgage loanYou are ready to apply for a mortgage loan. You hear phrases like FHA and conventional. You wonder which is better FHA vs conventional loan. How can you decide?
In order to make an informed choice you need to understand the plus and minus of both these loan programs:
FHA Loans
This is a loan program where the US Government guarantees the home loan to the lender. Anyone can apply for this loan program. The disadvantage is not all lenders are qualified to offer this type of loan program. So you have to go searching for one who is a qualified lender. Another disadvantage is the mortgage insurance requirement. But here are some advantages:
low down payment requirement
accepts creative down payment options
does not require perfect credit
will accept other options for credit when you do not have a credit history
lower closing costs
only 2 years after bankruptcy to qualify
only 3 years after a foreclosure to qualify
For most home buyers the FHA mortgages are usually easier to qualify for than conventional loans. It is also more lenient than the conventional way.
Conventional Loans
These are your other types of loan programs which are not guaranteed or insured by the federal government. The disadvantage is they usually have prepayment penalties and are not always assumable like the FHA mortgage. Here are some advantages:
do not always require mortgage insurance
high loan limits
interest rates are usually lower
loan usually closes faster
Conventional mortgages may be "conforming" and "non-conforming". How do you tell the difference? The conforming loans follow the guidelines set by Fannie Mae and Freddie Mac. Non conforming loans have more relaxed guidelines, but will cost you more in the interest rate. It is as simple as that.
Conclusion
Home buyers that have less than perfect credit or perhaps have not really established credit may not be able to qualify for a conventional loan with its advantages. Also, if you don't have much saved for a down payment, the FHA option may be a better one for you. Check around and try to work with lenders who offer FHA loans.
Perhaps you are a home buyer that has 10 to 20 percent saved and have good credit. Then you should try for a conventional loan. You can obtain a better interest rate and may be able to avoid mortgage insurance.
So which loan type is better? Well it depends on you and your situation! Ultimately, the decision is based on what you can qualify for. The FHA vs conventional loan discussion can be different depending on your set of circumstances. So take a close look at the advantages of both and see which one would be best for YOU.
