Some Differences Between FHA and Conventional Home Loans
For many people, understanding the many different home mortgage loan programs can be tough especially since there are many different home loan programs that a home owner can pick out from.
Two of the most common mortgage programs are FHA and conventional mortgage loans.
Many people are unsure whether to go with a FHA home mortgage loan compared to a conventional home loan. Each borrower ‘s situation is different so what is good for one person might not be the best option for the other home owner Best Home Loans in Canberra.
It is important for the person to understand the differences between FHA mortgages and conventional mortgages so that you are getting into the right home 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 loan. Each person is limited to only one FHA mortgage and you cannot do a FHA home mortgage on an investment property. Conventional mortgages can be used to purchase a primary, second or investment home. Both FHA mortgage loans and conventional home 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 mortgage loan is higher due to the upfront MI fee which is currently 2.25% of the loan amount. Conventional 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 loan which can be great for someone whose credit score is between 620-680. Conventional loan rates vary due to credit score. The lower the score, the higher the rate on a conventional 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 mortgage loans do not as long as you have at least 20% down.
Mortgage Size Differences
FHA home limits are set by HUD, for example in most of Texas, the maximum FHA mortgage is $271,050. Conventional loans have a maximum mortgage limit of $417,000 for most states.
There are many other factors in deciding on a mortgage program. It is important to contact a loan mortgage consultant to see which mortgage program best meets your needs.