FHA loans and conventional loans are two of the most common types of mortgages. FHA loans are backed by the Federal Housing Administration (FHA) and offered by FHA-approved lenders. These loans are
What is the difference between FHA and Conventional Loan?
Dated: August 18 2023
FHA loans and conventional loans are two of the most common types of mortgages. FHA loans are backed by the Federal Housing Administration (FHA) and offered by FHA-approved lenders. These loans are generally easier to qualify for than conventional loans and have smaller down payment requirements. However, you’ll owe mortgage insurance premiums (MIPs) for at least 11 years—potentially if you have a loan balance.
Unlike FHA loans, conventional loans are not insured or guaranteed by a federal agency. These loans have stricter lending standards and larger down payment requirements than FHA loans. But private mortgage insurance (PMI) is required only if you put down less than 20%. If that happens, you can ask your lender to cancel PMI when your balance drops to 80% of the home’s original value.
Some key differences between FHA and conventional loans include:
- Credit Scores: An FHA applicant can qualify with a credit score as low as 500, though 580 is preferable (and many FHA-approved lenders won’t go below it). To qualify for a conventional loan, you generally need a credit score of 620 or higher.
- Minimum Down Payments: FHA loans require a 3.5% down payment if your credit score is 580 or higher. However, those with scores from 500 to 579 must pay 10%. First-time homebuyers can get a conventional loan with a down payment of as little as 3% of the purchase price.
- Property Conditions: The property must meet FHA loan limits, which vary by county. In 2023, that’s generally up to $472,030 for single-family homes in low-cost areas and up to $1,089,300 in high-cost areas. Some counties have limits between these amounts. The property must also meet basic health and safety requirements if you’re going to get approved for an FHA loan.
With a real estate background since 1996, Ricardo obtained his broker's license in 2015 and excelled in his market by assisting investors. He has become a preferred Realtor in the Raleigh-Cary region ....
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