The biggest difference between conventional and FHA loans is that the first is not guaranteed by a government organization. Still, either type of loan could make sense for you, depending on the situation, so it’s important to understand some of the benefits and drawbacks of each.
When the government is standing behind you and guaranteeing that the lender will be repaid, it is much easier to qualify for the loan. Lending institutions can look at the bigger picture of your credit history and take a chance on you when they otherwise wouldn’t. You can also take advantage of lower down payment requirements and interest rates.
However, FHA loans require mortgage insurance, and there are fewer payment options than with conventional loans. When a government agency is involved, there’s a good chance you will have to deal with a lot of rules and regulations, and an FHA loan is no different.
It is a lot harder to qualify for conventional loans because there isn’t anyone covering for you if you can’t make the payments. The advantage here, though, is that you will have a lot more options for conforming and non-conforming loans. You won’t be capped at certain limits, and the terms for each loan can vary greatly.
While you won’t have to pay mortgage insurance with a conventional loan, you will probably have much higher down payment and credit score requirements. Many people have had trouble qualifying for these loans, which is what makes the FHA program so appealing, but this may still be a good option for people who want to avoid extra fees and insurance costs.
If you’re unsure about your loan options, contact us today and our specialists will help you understand the differences between these loan programs and what will work best for you.