Should You Apply for an FHA or Conventional Loan?

As you begin exploring your financing options for your next home loan, you will undoubtedly come across two primary options. These are FHA loans and conventional loans. Both have a low down payment requirement, so they could be ideal for many first-time applicants who have not saved up a large amount of cash that can be used for a down payment or for any applicants who simply do not want to drain their bank accounts of cash. Of course, there are other key advantages that both of these loan programs offer, so they could be suitable for applicants who want to make a larger down payment as well. What should you know about these programs?

FHA loans are those that are backed by the Federal Housing Administration. Because of this backing, banks are able to offer competitive rates with a minimum down payment of 3.5 percent. Notably, FHA loans have a minimum credit score requirement of 580, and there is a DTI requirement that must be met as well. This type of loan is also distinguished by a PMI payment. This is a private mortgage insurance payment that usually remains in place throughout the life of the loan.

On the other hand, conventional loans are either Fannie Mae or Freddie Mac programs. They have a minimum credit score requirement of 620 and a down payment requirement of three percent. There is also a PMI payment required for conventional loans if the original loan balance is higher than 80 percent LTV. The PMI payment drops when the loan-to-value decreases below 80 percent.

Are you still trying to decide between applying for an FHA or a conventional loan? Your next move should be to contact the MortgageDepot lending team for assistance with your loan application.

Connect with one of our loan consultants to learn more.