Which One Is Better? An FHA Or Conventional Loan?

Which One Is Better? An FHA Or Conventional Loan? - Absolute Mortgage Group Inc.

Which One Is Better? An FHA Or Conventional Loan?

First time homebuyer? Read this to understand whether and FHA or Conventional loan is best.

What is an FHA loan?

What is a Conventional loan?

Differences between FHA and conventional loans

Credit Score Requirements

Down Payment Requirements

Debt to Income Requirements

Loan Limits

Mortgage Insurance

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Dreaming about your first home purchase but still be undecided on whether to choose an FHA loan or conventional loan? While both are popular choices for those looking for a low down payment, some differences may make one loan a better option than the other.

This article will give you an idea of how they differ and give you insight as to which loan may work best in your situation.

An FHA loan is insured by the Federal Housing Administration. Lenient qualifications make it a good choice for those with lower credit scores and those with limited funds for the down payment.

On the other hand, conventional loans are not insured by a government agency and have qualifying terms set by private lenders. Conventional loans, sometimes called conforming loans, also adhere to standards set by Fannie Mae and Freddie Mac, two government-sponsored enterprises that purchase mortgages from lenders.

Generally speaking, there are higher qualifying standards for conventional loans when compared to FHA loans.

Lenders need to know your credit score no matter which loan option you choose.

FHA Loan

Credit scores as low as 500 may be eligible for an FHA loan as long as the borrower can afford a 10% down payment. However, if you have a credit score of 580 or higher, the down payment requirement is as low as 3.5%, and you’ll qualify for a more favorable interest rate.