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CONVENTIONAL VS FHA LOAN

Updated: Jan 28, 2023

FHA and conventional loans are two popular options for homebuyers, but they have some key differences. Understanding these differences can help you decide which type of loan is best for your needs.


 





One of the main differences between FHA and conventional loans is the credit requirements. FHA loans have more lenient credit requirements, and can be obtained with a credit score as low as 580. On the other hand, conventional loans typically require a credit score of at least 620.


“FHA loans also offer a number of other benefits, including more lenient income and debt-to-income ratio requirements, as well as the option to include closing costs in the loan.”

Another difference is the down payment requirement. FHA loans only require a down payment of 3.5%, while conventional loans typically require a down payment of at least 5%. This can make FHA loans more accessible for first-time homebuyers or those with limited savings.

In terms of mortgage insurance, FHA loans require mortgage insurance for the life of the loan, while conventional loans only require mortgage insurance if the borrower makes a down payment less than 20%. This can add to the cost of an FHA loan, but it also provides an important protection for the lender in case of default.

FHA loans also have limits on the amount of the loan based on the area where the property is located, this is called loan limits, while conventional loans don't have these limitations. This means that the amount that you can borrow may be limited based on the location of the property you want to purchase.

FHA loans also offer a number of other benefits, including more lenient income and debt-to-income ratio requirements, as well as the option to include closing costs in the loan. On the other hand, conventional loans often have stricter guidelines and may require a higher credit score or a larger down payment.

In summary, FHA and conventional loans are both popular options for homebuyers, but they have some key differences. FHA loans have more lenient credit requirements, a lower down payment requirement, but require mortgage insurance for the life of the loan and have loan limits. Conventional loans, on the other hand, typically have stricter credit requirements, a higher down payment requirement, but don't have loan limits and require mortgage insurance only if the borrower makes a down payment less than 20%. It's important to consider your personal financial situation and the specific requirements of each type of loan when making your decision.


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