FHA? Conventional? What Do These Loans Mean?!

Finding the right kind of mortgage or home loan that works for you is one of the earliest and most important parts of the home buying process for a potential homeowner. Before you find the home of your dreams,  you need to figure out the best way to pay for it by understanding mortgage myths and which mortgage loan is right for you. Conventional loans and Federal Housing Administration (FHA) loans are both common options, especially for first-time homebuyers or real estate buyers. How do you decide which home loan options make the most sense for you and your home buying experience? Get started by understanding the differences between them so you can make the best choice for your financial future and understand some mortgage myths about your mortgage loan from a trusted mortgage lender to make your mortgage process smooth.

Down Payment

Both conventional and FHA home loans require reasonable loan down payments: a minimum of 3 and 3.5 percent of the final purchase price respectively. They’re both good options if you’re a little short on cash but still looking to make a deal in the near future with a good mortgage rate from mortgage lenders.

Credit Score

While conventional loans typically require a minimum credit score of 620, FHA home loans only require a minimum credit score of 500, so you do not need perfect credit. This is helpful for first-time homebuyers or a borrower that might have not had as much time to establish a solid credit rating. FHA home loans also have a shorter timeframe for approval following credit problems such as foreclosures or bankruptcy.

Interest Rate

Unlike conventional loans, FHA home loans are assumable. That means that the interest rate and mortgage rates balance can be taken on by a future home buyer. This can help make your home more appealing to a future home buyer.

Refinancing

FHA home loans are eligible for “streamline refinancing,” which is a low-cost, quick way to refinance a mortgage when interest rates are lower. This type of flexibility can help you take advantage of significant changes in the housing market that conventional loans might suffer from.

Mortgage Insurance

When you make a down payment of at least 20 percent on a conventional loan, paying for mortgage insurance isn’t necessary. But you’ll need mortgage insurance on a FHA home loan, regardless of the size of your down payment and mortgage rate. This can mean additional costs in the form of upfront and monthly premiums in the mortgage loan balance.

Loan Amount

The size of an FHA home loan is more regulated and can change from location to location. Generally, the maximum amount for an FHA home loan is $625,000. If you’re purchasing something like an investment property and need something larger, conventional loans should do the trick..

As you can see, there are many reasons to pick either conventional or FHA home loans. If you’re still struggling to decide, the consultants at Liberty Lending, a trusted mortgage lender, will assess your financial situation and help you choose the best home loan for you which can help your real estate agent find a home within your price. Whatever your circumstance, we’ll work to get you into the home of your dreams. Want some more information? Fill out our form or give us a call at 314-336-9111.