FHA Loans vs Conventional Loans?

FHA (Federal Housing Administration) loans and conventional loans are two types of mortgage loans that have some significant differences. Here are five key differences between FHA loans and conventional loans:

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1. Loan Requirements: FHA loans are government-backed loans, which means they have more lenient credit score requirements than conventional loans. FHA loans typically require a credit score of 580 or higher, while conventional loans usually require a credit score of at least 620. FHA loans also allow a higher debt-to-income ratio than conventional loans.

2. Down Payment: FHA loans typically require a smaller down payment than conventional loans. With an FHA loan, you can make a down payment as low as 3.5% of the purchase price, while conventional loans usually require a down payment of at least 5%.

3. Mortgage Insurance: FHA loans require mortgage insurance premiums (MIP), which protects the lender if you default on the loan. The MIP is paid upfront and then annually as part of your mortgage payment. Conventional loans also require mortgage insurance if you put down less than 20% of the purchase price, but this insurance is typically called private mortgage insurance (PMI) and is paid monthly as part of your mortgage payment.

4. Loan Limits: FHA loans have maximum loan limits that vary depending on the area where the property is located. These limits are typically lower than the maximum loan limits for conventional loans, which can make it more challenging to buy a higher-priced home with an FHA loan.

5. Property Requirements: FHA loans have stricter property requirements than conventional loans. For example, the property must meet certain health and safety standards, and there may be limits on the type of property that can be financed with an FHA loan.

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Overall, FHA loans can be a good option for borrowers with lower credit scores or smaller down payments, while conventional loans may be a better choice for borrowers with higher credit scores and larger down payments. To discover what lending options are best for you contact our team at NW Alternative Mortgage today!