It is everyone’s dream to own a house one day. Payment of rent is quite expensive, and it will cost much more than buying or building a home over the long term. First-time buyers usually do not know whether to utilize FHA or conventional loans. This is because most of them have recently completed studies and are joining the workforce for the first time. They do not have adequate information on how to choose the best mortgage plan for their needs. Such a situation might lead them into making risky home investments that might end up being very costly in the long run. The summaries below between FHA home loans vs conventional will give a prospective home buyer a clear picture of what each loan entails.
More on FHA and Conventional Loans
An FHA loan is a mortgage offered by the federal housing administration (FHA). The FHA is a government department that provides subsidized loans, especially to first-time homeowners. The interest rates are usually low to enhance affordability amongst this demographic. Majority of FHA loan buyers comprise recent graduates. All someone needs to secure an FHA loan is a credit score of 580 and above as well as making a down payment of 3.5 percent. For people who have credit scores of between 500 and 580, they will make a down payment of 10 percent.
Conventional loans, on the other hand, are any other type of mortgages that are neither offered nor secured by the federal government. They are availed or guaranteed by private lenders. These might include credit unions, banks, and mortgage companies. These loans also comprise of government-sponsored agencies such as the federal home loan mortgage corporation (Freddie Mac) and the federal national mortgage association (Fannie Mae). Loan rates for conventional mortgages are generally higher than FHA loans. Interest rates usually depend on various factors including, size, length, and whether it is an adjustable-rate or fixed-rate loan. Current financial market and economic conditions are also determinants of the rate. Both conventional FHA loans are highly valuable and helpful depending on the circumstance.
FHA Loans Vs Conventional Mortgages Requirements
FHA conventional loans have different requirements that any borrower must meet before securing the financing. The following table highlights the requiems of each.
The Top Five Best Lenders for FHA Loans
Purchasing a mortgage with poor credit is a daunting task. Especially when you have wholesale student loans, it becomes even harder to obtain credit. Nevertheless, there are still some options to obtain loans with fairer annual percentage rates. In your comparison between FHA loans vs conventional loans, you need to find the best provider for the best deal. The following are 5 of the best banks for FHA loans
Ditech home loans: Here you will receive an FHA loan that allows a down payment of as low as 3.5 percent.
Primary residential mortgage Inc.: the FHA loan down payments comprise 3.5 percent of the final amount
Bank of America: this bank offers one of the most affordable loan solutions with a down payment as little as 3 percent
Quicken Loans: their FHA down payments are also 3.5 percent
Wells Fargo: loan down payment is 3.5 percent
Top 5 Lenders for Conventional Mortgages
Just as there are best mortgage lenders for FHA loans, there are also top lenders offering conventional loans. The following are some of the highly ranked conventional mortgage creditors.
Quicken Loans: being the largest lender in the nation, you will receive a full complement of products for refinancing and buying. The loan process is simplified through technology
Citi mortgage: offers low down payment avenues without the need for private insurance.
Lenda: here you can refinance your mortgages without origination fees or paying broker fees. You also need a minimum credit score of 620
Chase: you will receive a variety of refinancing options. The best packages include fixed, adjustable and jumbo loans.
Guaranteed Rate: boasts of a high satisfaction rate of above 95 percent and offers a fully digitized mortgage platform for both purchasing and refinancing.
Guidance As You Choose between Conventional vs FHA Home Loans
A pros and cons list helps when debating about FHA versus conventional loans. Below are the advantages and disadvantages of FHA Loans.
- The credit requirements for this loan are favorable to first-time buyers
- A down payment of 3.5 percent is affordable to most people
- Debt ratio requirements are also lower
- They provide lower interest rates than conventional loans
- You do not get a reward for your good credit score
- You will pay higher mortgage insurance compared to conventional loans
- The stringent inspection standards might prevent you from purchasing the home you desire
- Loan choices are relatively few
- Borrowing caps are generally low
- If you want a condominium, you have very few loan options
The Pros and Cons of Conventional Loans
Below are the merits and demerits of conventional loan types to help you make an informed decision:
- Conventional loans have lower mortgage insurance. These can be as low as 0.50 percent
- Once your loan-to-value amounts reach 78 percent, the monthly mortgage insurance must be removed from your monthly premiums as per the law
- You do not require an upfront mortgage insurance premium.
- Borrowing caps are much higher.
- More stringent guidelines regarding seller contributions and credit history
- Lower debt-to-income ratios
- Conventional loans down payment are usually 5 percent which is much higher than FHA loans
- Higher interest rates
Statistical Comparison between FHA And Conventional Mortgages
With all the above information, you are well equipped to weigh all the factors when undertaking FHA loans vs conventional debate before you make a homeownership decision.