Finding the right kind of mortgage that works for you is one of the earliest and most important parts of the home buying process. Before you find the home of your dreams, you need to figure out the best way to pay for it. Conventional loans and Federal Housing Administration (FHA) loans are both common options, especially for first time homebuyers. How do you decide which loan makes the most sense for you? Get started by understanding the differences between them so you can make the best choice for your financial future.
Both conventional and FHA 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.
While conventional loans typically require a minimum credit score of 620, FHA loans only require a minimum credit score of 500. This is helpful for first-time homebuyers that might have not had as much time to establish a solid credit rating. FHA loans also have a shorter timeframe for approval following credit problems such as foreclosures or bankruptcy.
Unlike conventional loans, FHA loans are assumable. That means that the interest rate and mortgage balance can be taken on by future homebuyers. This can help make your home more appealing to interested parties.
FHA 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.
When you make a downpayment 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 loan, regardless of the size of your down payment. This can mean additional costs in the form of upfront and monthly premiums.
The size of FHA loans is more regulated and can change from location to location. Generally, the maximum amount for an FHA 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 loans. If you’re still struggling to decide, the consultants at Liberty Lending will assess your financial situation and help you choose the best loan for you. 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.