So you wish to get a mortgage but is torn between FHA loans and Conventional loans. Which one should you choose? Which loan type is better for you?
Choosing the right type of home loan is essential when buying a house with the help of a mortgage. By applying and getting approved of the right mortgage type, you get to have the best deals for your home purchase.
As the two most popular types of home loan, it is worth knowing that their main distinction is that the Federal Housing Administration insures FHA loans but not Conventional loans.
To help you decide between the two mortgage programs, it worth comparing the characteristics of FHA Loans Corpus Christi and Conventional Mortgages.
FHA loans are the go-to option for individuals who can only afford the minimum down payment. You can buy a house by applying for a mortgage with as little as 3.5% down payment.
Contrary to popular belief, not all conventional loans require 20% down payment. Some conventional mortgage types will accept low down payments for as low as 3%.
Private Mortgage Insurance
Since you can avail an FHA loan for as low as 3.5% down payment, expect that you will need to pay Private Mortgage Insurance, but FHA calls it as a Mortgage Insurance Premium. There will be an upfront premium and a monthly PMI fee for the whole duration of the loan.
For Conventional Mortgage borrowers, you will only pay for PMI if you pay less than 20% down payment. You will need to pay a single premium or a monthly PMI fee depending on the terms agreed by you and your lender. Once you achieve 78% LTV value, PMI ends automatically.
Down Payment Assistance
FHA loans allow first-time homebuyers avail down payment assistance programs.
On the other hand, Conventional loans don’t have any available down payment assistance programs.
Another reason why first-time homebuyers prefer FHA loan types is that you can get approved for a home loan even if you have a poor credit score. Different lenders have variations when it comes to FICO score requirement, but some are willing to finance your home purchase even if you have 580 credit score or lower.
Good read: 9 Benefits of Having a Good Credit Score
As for conventional mortgages, you need to improve your credit score and make it at least 620 for you to qualify for the loan.
Your Debt-To-Income Ratio can be as high as 50%, and you can still get approved for an FHA loan.
Most lenders who offer conventional loans accept up to 43% DTI ratio.
Lenders can offer you the maximum mortgage limit depending on the type of home loan you qualify for, the place where you plan on buying a house and the median prices in that area.
Conventional loans go by the same limit, but as of 2018, most lenders offer $453,100 credit limit to their borrowers.
Property And Residence Type
Houses you plan on buying with FHA loans need to be your primary residence and has to pass the appraisal and home inspection.
You only need to pass a few obstacles when it comes to buying the type of property with a conventional loan. You can purchase primary or secondary residences, a vacation home or even a rental property.