One of the first questions you may be asked when you apply for a new loan is if you prefer an FHA loan or a conventional loan. These two options are similar in some regards, but they stand apart in key areas. After you get to know more about their differences, you can better determine which option is a good fit for your needs.
An FHA loan is a home mortgage that is backed by the Federal Housing Administration. This essentially means that the FHA will reimburse the lender for lost funds if you default on your mortgage. This type of home loan has a few standout features. It is open to applicants with a 580 credit score or higher. You can put as little as 3.5 percent down on your new home with this program. In addition, a mortgage insurance premium will be tacked onto your monthly loan payment for the life of the loan.
A conventional loan is not backed by the FHA, but it may be insured by Fannie Mae or Freddie Mac. You will need a 620 credit score or higher to qualify. The down payment amount is a .5 percent less than the alternative program. A mortgage insurance premium is also required with a conventional loan, but it can be removed once you have 20 percent equity in the home.
For some applicants, the down payment amount or the credit score will determine which loan program is most advantageous for them. If you have the choice between both options, you should consider the fact that the mortgage insurance premium disappears with conventional loans with established equity.
Do you still have questions about FHA and conventional loans? Our lending team at MortgageDepot can answer your questions and will support you throughout your loan application experience. To inquire about the home loan programs that are available to you, contact MortgageDepot today.
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