FHA vs Conventional Loan - What is the Difference?

FHA vs Conventional loan - which is a better choice? Find out which is the best choice for you!

Many people get confused on the difference between these two types of loans. It is like a tug of war between these two type of loan products.

It also offers a low down payment of 3.5%, low closing costs and does not require that you have perfect credit. Whereas the conventional mortgage loan has a higher down payment, higher closing costs and requires a higher credit score.

Let me use an example so you can see what I mean when comparing the FHA vs Conventional loan products.

Say you want to buy a house for $200,000:

• With FHA your down payment would be $7,000 (3.5%) and on the conventional loan it would be $20,000 (10%).
• The closing costs on an FHA loan can be included into your loan up to 6% of the sales price. On a conventional loan, it normally would be 3% or less.
• Then the credit requirements for an FHA loan are less restrictive. Credit scores of 580 to 620 will satisfy the FHA lender whereas the conventional lender may want to see 700-720.

Comparing just these 3 things shows that FHA loans will always win in a discussion of FHA vs Conventional loan.

Where the conventional mortgage loan wins is they do not usually require mortgage insurance. But the FHA loans do.

Keep in mind mortgage insurance is different than house insurance. Mortgage insurance insures the mortgage where house insurance insures the home.

Both loan types require house insurance. FHA requires the additional insurance to cover the mortgage.

You do not like the idea of paying additional insurance. Then a conventional mortgage loan would be a better choice for you.

When we look long and hard at the first option, the FHA loan may have a slightly higher interest rate than the conventional loan but it's much easier to get a mortgage using it. Check around and try to work with lenders who offer FHA loans.

FHA is the mortgage I first used when buying a house and I would not be embarrassed to use it again. This is a loan program that has been offered since 1934. It has helped millions of people become home owners.

There are other differences between FHA vs Conventional Loan comparison. But the few I mentioned above makes all the difference in the world for most first time buyers. I guess the question remaining is, are you next?

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