FHA vs Conventional Pros and Cons

FHA vs Conventional Pros and Cons

Looking for FHA vs Conventional pros and cons? We’re here to help you and your lender make the right decision. Becoming a homeowner is a huge commitment that follows with a lot more complexity and stress. The biggest thing that makes most home buyers stressed is the price of the home and how to pay for it.

Loans and credit are never touched and talked about in school but are the two most important aspects of buying a home. Though there is a plethora of loans and qualifications needed, there are two main loan types for interested borrows: an FHA loan and a Conventional loan.

FHA vs Conventional

What is an FHA Loan?

An FHA loan or Federal Housing Administration loan is one backed by the government. This means that this money is borrowed from the government instead of a private lender like a Conventional loan. The FHA loan has less strict standards to obtain the money than the Conventional loan.

If you are worried about your credit score an FHA loan is designed to have lenient credit guidelines. Those who have a score of minimum 580 qualify for a 3.5% down payment (this is the percentage of the house’s purchase price used for an upfront payment) and 10% if your score is between 500 and 579.

The downside of the FHA loan is the Upfront Mortgage Insurance Premium that is due at closing or rolled into the loan amount; additionally, borrowers of the FHA loan are required to pay a monthly insurance premium for the length of the loans term.

What is a Conventional Loan?

A Conventional loan is issued by a private lender. This loan is available as a fixed-rate which means the interest rate will remain the same throughout the loan term; adjustable-rate mortgage is the other option which is based on the remaining balance and can cause the interest rate to change throughout the term.

You need a higher credit score, down payment, and lower debt-to-income to qualify for this loan. These loans are given by either Freddi Mac or Fannie Mae which are government-created enterprises that deal with mortgages.

When having a higher credit score and qualifying for a Conventional loan, there is a higher loan amount cap than an FHA loan. A Conventional loan is even more beneficial if your credit score is over 720 leading to better rates.

There is also no monthly insurance if a borrower can put down 20% for the down payment.

FHA vs Conventional Pros and Cons

Both you and your lender should understand FHA vs Conventional pros and cons as they relate to your financial situation. As a borrower, you’ll want to weigh the various benefits and risks of a new home loan. While there are many advantages to both, be sure that you understand your options before making a decision. Learn more about FHA vs Conventional pros and cons, below:

Conventional vs FHA pros and cons

Which One Fits You?

Should you go with a Conventional or FHA loan? The choice between these two loans varies on each borrower’s situation. If you know your financial status, then you may already know which one you qualify for and want to go ahead with.

If not, just keep in mind that a Conventional loan:

  • Requires a higher credit score         
  • If you have a low debt-to-income ratio
  • Want flexible repayment terms

As for an FHA loan:

  • Accepts lower credit scores
  • Private mortgage insurance required
  • You don’t have a lot of money for a down payment
Finance Your Home Today

We hope this article, FHA vs Conventional Pros and Cons, has helped you better understand your financing options. If you are still unsure what loan would better fit your needs, you can speak to Guild Mortgage’s Loan Officer, Jackie Gonzales, to help weigh the pros and cons of each loan. Contact Jackie Gonzales from Guild Mortgage Denver today!