Mortgage Industry News & Advice

What’s the Difference Between Conventional and FHA Mortgages?

By on January 7, 2011 in Mortgage Programs, Mortgage Rates

I am often asked the question: what’s the difference between conventional and FHA mortgages? In fact, you may think all of these mortgage programs are more complicated than the Rubik’s cube.  I really hated that thing!  The good news is that these mortgage programs are much easier to figure out.  One of the major differences is who is backing the loans. Conventional loans are backed by Freddie Mac and Fannie Mae. FHA loans are backed by the Department of Housing and Urban Development (HUD). So you are probably wondering what difference that makes. The main difference that affects you is the different guidelines for down payment, mortgage insurance, and credit requirements. Here are a few of the main differences:

Down Payment:   FHA requires a 3.5% down payment while conventional typically requires a minimum 5% down payment so typically FHA loans will allow you to get into a home with less money out of pocket.

Mortgage Insurance: FHA requires both a monthly mortgage and an upfront mortgage insurance premium. The good news is that the up front mortgage insurance is added to your loan amount so it does not increase the amount due at closing. Conventional loans typically only have monthly mortgage insurance.

Credit Requirements:  Most lenders require a minimum 640 credit score for FHA loans. To get a conventional loan with a low down payment you would typically need a higher score. Also, a conventional loan will typically have a higher rate unless you have credit scores of 700 or more.

So what is the best loan for you?  Every situation is different and the only way to know for sure is to have a qualified mortgage consultant analyze your situation and find the best loan for your needs. Please share your questionsor comments.  If you would like a custom plan for your situation please feel free to contact me.

About the Author

About the Author: All lenders seem to be selling the same products with the same guidelines, and the industry is going through a great deal of confusion in light of new regulations and turbulent market conditions. As a Certified Mortgage Coach graduate I am equipped to help my clients cut through the confusion and make informed financial decisions. The mortgage is most people’s single largest debt, and their home is often their single largest asset. As a Certified Mortgage Coach, I am committed to working for the best interest of my clients. NMLS ID 162269 .


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