Home Loans: FHA vs Conventional Mortgages

FHA vs Conventional Mortgages

FHA home loans have been steadily growing in popularity over the past few years, and it’s not exactly hard to see why – with a down payment that equals out to only 3.5 percent, FHA loans can make buying or refinancing a home loan that much easier for many buyers.  This looks like an even more attractive offer when you consider that most conventional mortgages generally require a down payment upwards of 10-20% or higher.

convetional-fha-loan

But wait, there’s more!

It’s important to note from the get-go that Federal Housing Administration loans aren’t actually exactly home loans in the traditional sense of the word – the FHA itself doesn’t really make or even guarantee home loans, it merely insures them.  This insurance is used to either minimize or outright remove the default risk that comes from buyers who put down less than 20% for a down payment.  FHA lenders are allowed to take and process loan applications as well as underwrite and close the loan themselves.

Many homebuyers tend to favor them over other loan types because they offer the easiest refinance options, allowing for more flexibility in the homebuyer’s credit rating, their financial income, equity, and (probably most important to many) the amount required for a down payment.

Downsides to FHAs?

With so many positives we’ve listed so far, there’s got to be a couple of negative points against them.  I mean, it can’t all be sunshine and rainbows, can it?

Well, there can be a couple of downsides.  Borrowers will have to pony up more money for insurance premiums.  This means paying an upfront mortgage insurance fee of at least 1.75 percent of the overall loan amount.  The good news here though, is that said fee can be rolled into the mortgage itself, so you won’t have to worry too much about coming up with funds for a separate fee.

Interested in learning more about FHA loans, or seeing if you qualify for one?  Contact us. Our loan officers are standing by…

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