blogConventional Loan BlogsFHA LoanWhat Is the Difference Between FHA and Conventional Loan

September 19, 2014by Darryl Bledsoe

Conventional Loan LenderMost home buyers don’t have the financial resources to pay for their home upfront. A large amount of home buyers will take a loan or set up a payment method to cover the cost of the purchase. The loaned amount together with its interest is then paid in installments over a defined period of time. The two most common types of loans used to finance property in America today are FHA and conventional loans. The difference between FHA and conventional loan are becoming increasingly similar in recent years but each loan program still has its own advantages and disadvantages.

What Is a Conventional Loan

A conventional loan is a loan that can be acquired from a private financial institution or lender and is not federally insured against borrower default. Most conventional loans fall into the conforming loan limit of $417,000.00. The requirements and approvals of conventional loans are based on lender guidelines. Market competition dictates the interest rates and most lenders adhere to the Fannie Mae and Freddie Mac guidelines so they can sell the loan to either of the mortgage giants and replenish their own lending ability. Credit score and down payment are closely looked at during underwriting and a 620 FICO score with a minimum of five percent down payment are normal requirements for conventional loans.

  • Cheaper mortgage insurance premiums and in some cases MIP is eliminated
  • Up to 40 year loan terms
  • No loan limit
  • Quick underwriting process
  • Great for condominiums where mortgage insurance is difficult to obtain

What Is a FHA Loan

The FHA housing loan on the other hand, is a government insured housing loan program offered to home buyers via numerous lenders throughout the country. Although the government is not actually funding the loan, they do insure the loan so that the lender does not assume the full risk on the transaction. There are several advantages to FHA insured loans. FHA loan qualifications are not as strict when compared to conventional loans. Borrowers with low credit scores can be approved for an FHA loan provided that their job history has been secure for a minimum of two years or more. FHA loan requirements allow for lower down payment at closing. The average down payment required for a FHA loan is at 3.5% of the properties purchase price making it reasonable for the average American worker.

Processing and getting approved for a housing loan takes time and effort. Avoiding confusion and timely execution are vital in obtaining the right financing on a home and the right financing can be vital and can save you thousands of dollars over the life of the loan.

  • Low down payment
  • Low FICO score requirement
  • Higher debt to income allowance
  • Bankruptcy and foreclosure acceptable


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What Is the Difference Between FHA and Conventional Loan
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