FHA loans vs. conventional loans: What’s the difference?
So you’re looking to buy a house, and you want to explore all of the financing options available to you.
You might have heard that FHA loans and conventional loans are the way to go, but like every loan product, each one is best for a certain kind of buyer and situation. Although these two are great mortgage products to consider, they have many differences, which are important to note if you’re buying a home in the near future.
Here’s what you need to know about FHA loans, conventional loans, as well as the differences between these two mortgage products.
FHA loans and conventional loans: At a glance
FHA loans are mortgages that are insured by the Federal Housing Administration, while conventional mortgage loans aren’t covered by any federal agency.
FHA loans are easier to qualify for, which is especially helpful if you can’t afford a large down payment or have a low credit score. However, you’ll need mortgage insurance when you go this route, regardless of how big of a down payment you put down.
On the other hand, you don’t need mortgage insurance for conventional loans if you pay 20% as a down payment. However, conventional mortgage loans are harder to qualify for, as you need better credit.
How to qualify
To qualify for an FHA loan, you need a credit score of 580 or higher for a minimum down payment of 3.5%. Lower scores will require you to put down 10% or more.
FHA loans also come with stricter guidelines, as you can only use them on a property you plan on living in as your primary home. Appraisal standards are much higher as well, so expect yours to be vetted much more strictly than a home purchased with a conventional mortgage.
Meanwhile, conventional loans usually require a credit score of 620 or higher to qualify. Anything lower will be subject to higher interest rates. Compared to FHA loans, you can usually expect slightly lower down payments as well.
Plus, you can use mortgage loans to purchase other properties as well — you aren’t restricted to purchases of primary homes with this option. This means you can use them to buy properties you plan on vacationing or investing in.
In both cases, your debt-to-income ratio must remain 50% or less, although your chances for approval increase with a DTI ratio of 43% or lower. Both options restrict how much you can borrow from a mortgage lender, although the specifics will differ depending on your location.
If you’re unsure which one is best for your situation, you may want to consider talking to a mortgage loan officer to help you make your decision.
Get in touch with Atlas Crown Mortgage today
When it comes to FHA loans, conventional loans, and other mortgage products, you can rely on the team of experts at Atlas Crown Mortgage.
With over 25 years of experience, 50 lenders in our network, and a state-of-the-art search program, we have the knowledge and expertise to help you find the best rates every time. Plus, we’re licensed in multiple states, including Florida, Colorado, California, and Arizona.
Contact us today and we’ll help you find the best loan for your needs and situation. If you have any questions or concerns about our services, you can call us directly at (480) 470-8700.