FHA vs Conventional Loan

As an agent, I understand the importance of educating our audience about the different types of loans available in the market. In this blog post, we will discuss the difference between an FHA loan and a conventional loan.

FHA loans and conventional loans are two of the most popular types of mortgages available to homebuyers. While both loans can help you finance your dream home, they have some key differences that you should be aware of before making a decision.

FHA loans are backed by the Federal Housing Administration, while conventional loans are not. This means that FHA loans are more accessible to borrowers with lower credit scores and smaller down payments. In fact, you can qualify for an FHA loan with a credit score as low as 500 and a down payment as low as 3.5%. On the other hand, conventional loans typically require a credit score of at least 620 and a down payment of at least 5%.

Another key difference between FHA loans and conventional loans is the mortgage insurance requirement. FHA loans require both an upfront mortgage insurance premium (MIP) and an annual MIP, which is added to your monthly mortgage payment. The upfront MIP can be financed into the loan, but the annual MIP cannot be canceled unless you refinance into a conventional loan. Conventional loans, on the other hand, only require private mortgage insurance (PMI) if you put down less than 20% of the purchase price. PMI can be canceled once you reach 20% equity in your home.

When it comes to loan limits, FHA loans have a maximum limit that varies by county and is adjusted annually. In 2021, the maximum FHA loan limit for a single-family home in most areas is $356,362. Conventional loans, on the other hand, have higher loan limits that are determined by the Federal Housing Finance Agency (FHFA). In 2021, the maximum conventional loan limit for a single-family home is $548,250.

In summary, FHA loans are a great option for borrowers with lower credit scores and smaller down payments, while conventional loans are a better fit for borrowers with higher credit scores and larger down payments. Both loans have their pros and cons, so it's important to do your research and consult with a mortgage professional to determine which loan is right for you.

As an agent, I encourage you to explore all of your options and make an informed decision that aligns with your financial goals and needs.

Keep in mind rates

of interest can change*