FHA Mortgage vs Conventional Mortgage

FHA Mortgage vs Conventional Mortgage

While most folks when looking to buy a home rely on their mortgage company to advise them, its important to know the key differences between an FHA loan and a Conventional Loan. The word Conventional Loan means loans under Fannie Mae and Freddie Mac. FHA loans are government insured loans where conventional loans are issued by a bank and then securitized by Fannie Mae or Freddie Mac

With FHA you can buy a home, have a home built, refinance to take out cash or refinance to lower your rate and payment.

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The main benefits of FHA over Conventional loans have to due with the approval and credit requirements. FHA has the most lenient requirements when getting a home loan. With an FHA loan it will have a lower interest rate, lower down payment and they work with all types of credit. With Conventional they general only accept good credit or better and want a sizable down payment.  The chart below outlines the reasons why FHA is a better choice:

Type of Mortgage Conventional Loan FHA Loans Conventional Financed MI Conventional Lender Paid MI
Purchase Price $300,000 $300,000 $300,000 $300,000
Mortgage Amount W/5% Down $285,000 $289,987 $289,547 $285,000
Interest Rate W/1.75 points 5.25% 4.50% 5.25% 5.75%
Principal Interest Payment $1,573.78 $1,469.90 $1,626.50 $1,663.11
Mortgage Insurace Payment $185.25 $118.75 Built into MTG Built into MTG
Total Mortgage Payment-P&I and Mortgage Insurance $1,759.03 $1,588.67 $1,626.50 $1,663.11
Monthly Saving Winner against all 3 read below

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Other Reasons why FHA Is a Better Choice:

More Loan Options: With the FHA there are several loan programs.

  •  Can be used for new homes
  •  Mobile and manufactured homes
  •  New construction
  •  Home Improvement and repair loans
  •  Condominiums & Townhomes
  •  Homes with acreage

Streamline Refinance Eligibility: Once you get an FHA mortgage you can always refinance later to lower your payment, change your term or get cash back. The refinance process is called a streamline process where it’s a simple process that does not require a new appraisal and has a reduced income and credit review.