FHA Loan
What is an FHA Loan?
Federal Housing Administration isn’t a lender, but is actually an insurer on mortgages. This loan requires a minimal 3.5% down payment on the home you are willing to buy.
FHA Loan Requirements
- Must be a 1st time homeowner
- Fair credit score
- 3.5% down payment
FHA Loan Pros
- Low down payment (3.5%)
- Higher low credit acceptance rate
- Good debt-to-income ratios
FHA Loan Cons
- Very limited properties accept FHA
- FHA Cap (no more than $271,050)
- FHA mortgage insurance is higher than PMI (Private Mortgage Insurance)
Conventional Loan
What is a Conventional Loan?
A Conventional Loan is a loan given to people with better credit and require a minimal 5% down payment on the home you are willing to buy.
Conventional Loan Requirements
- Good to Excellent credit score
- Minimal Down Payment of 5%
Conventional Loan Pros
- Faster and smoother transaction
- PMI (Private Mortgage Insurance) is lower than FHA mortgage Insurance
- More property options
Conclusion (Which is better?)
When it comes to receiving a loan, ideally owing less will always be a better option. Although FHA Loans require a lower down payment of 3.5%, you still would be stuck with a higher insurance which is money that could be going towards your mortgage. For that extra 1.5%, taking a Conventional Loan at a 5% down payment ultimately benefits you in the long run. PMI (Private Mortgage Insurance) is much lower than FHA mortgage insurance. Also, after owing 80% or lower (20% equity), that PMI is lifted. The only way to remove FHA mortgage Insurance is to refinance your house which is more of a hassle and requires closing cost to be paid. Sacrificing by saving that extra 1.5% and maintaining a good to excellent credit score can go a long way and save you big bucks in the long run.
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