FHA vs Conventional Financing
While many people deciding on a loan product
rely exclusively on their lenders
recommendation, you should understand the
basic difference between an FHA loan and a
Conventional Loan. The term Conventional
Loan includes all loans under the current
Federal National Mortgage Association (FNMA)
and Federal Home Loan Mortgage Corporation (FHLMC)
lending limits.
The main difference between an FHA loan and
a Conventional loan is that the credit
qualifying criteria for a borrower obtaining
an FHA loan is not as strict as a
conventional loan. The down payment or
equity requirements are less too. Generally,
Conventional loans have higher interest
rates and require a larger down payment and
often times carry a Pre-Payment penalty
whereas FHA loans do not.
FHA loans will allow a borrower who has
sufficient credit history to buy a home. An
FHA Underwriter will require a reasonable
explanation of all derogatory credit, but
will approach a person's credit history with
common sense credit underwriting.
FHA is one of the few home mortgage programs
that allow a borrower to have their down
payment gifted from a family member, a
governmental agency, or non-profit
organization. This allows home buyers
without the necessary liquid funds to buy a
home today.
One drawback to FHA loans is that the loan
limits are typically less than the loan
limits for conventional financing in most
parts of the country. In addition, all FHA
loans require a full income check to ensure
the applicants ability to make timely
payments.
Helpful Links
What is an FHA Loan
Types of FHA Loans
FHA FAQ's
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