FHA and Conventional Home Loans – The Differences Between The Two Loan Programs

For many people, understanding the many different home mortgage programs  can be difficult  especially since there are many different mortgage programs that a person  can select from.

Two of the most common home loan programs are FHA home loans and Conventional Home Loans.

Many home buyers are unsure whether to go with a FHA loan  compared to a conventional mortgage.  Each borrower ‘s situation is different so what is good for one person might not be the best option for the other person.

It is important for the home owner to understand the differences between FHA mortgages and conventional home mortgage loans so that you are getting into the right mortgage loan  for your particular situation.

For the most part, FHA is designed for a first time home buyers, but anyone can have a FHA mortgage .  Each person is limited to only one FHA mortgage loan  and you cannot do a FHA home loan  on an investment property.  Conventional home loans  can be used to purchase a primary, second or investment home.  Both FHA loans and conventional mortgage loans can be used to purchase or refinance a house . 

Down Payment Differences

FHA does require a smaller down payment, but the closing cost for a FHA home loan is higher due to the upfront MI fee which is currently 2.25% of the loan amount.  Conventional home mortgage loans do not have an upfront MI fee.  The current FHA down payment minimum is at 3.5% down while conventional loans require at least 5% down.

Credit Score Differences

Credit scores also have a limited impact on a FHA home mortgage loan which can be great for someone whose credit score is between 620-680.  Conventional mortgage rates vary due to credit score.  The lower the score, the higher the rate on a conventional mortgage loan.  Also, if you credit score is below 680, you might not be able to get approved for Private Mortgage Insurance.  If PMI is not approved, then you must have a down payment of at least 20%.

FHA does require an escrow account while conventional loans do not as long as you have at least 20% down.

Home Mortgage Loan Size Differences

FHA home limits are set by HUD, for example in most of Texas, the maximum FHA loan is $271,050.  Conventional mortgages have a maximum mortgage limit of $417,000 for most states.

There are many other factors in deciding on a mortgage loan program.  It is important to contact a loan mortgage advisor to see which mortgage program best meets your needs.

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