When you need financing to buy a home, it is important that you know the difference between conventional and FHA mortgages. Both of these types of loans are provided by qualified lenders and guaranteed by the Federal Housing Administration (FHA). They have different requirements for credit scores and down payments, so there are some key things you must know about each before choosing one for your future home purchase.
Conventional Mortgages
A conventional mortgage is a type of loan that people can get from both private lenders as well as government-sponsored entities like banks and credit unions. Most people choose this form of financing because it often requires less paperwork and has more flexible qualification criteria than an FHA loan. However, it is not available to everyone.
To qualify for a conventional mortgage, you generally need a credit score of at least 620 and a down payment of at least 3%. You must also have enough income to cover your monthly payments and demonstrate that you can pay off the debt. Your lender will also look at your employment history and financial stability to determine whether you are a good candidate for this type of loan.
FHA Mortgages
An FHA mortgage is a type of loan that is guaranteed by the federal government. This program was created to help people who may not have the best credit or enough money saved up for a down payment qualify for a home loan. The requirements for an FHA loan are more lenient than those for a conventional mortgage, which makes this form of financing more accessible to people with less income and credit history.
In order to qualify for an FHA loan, you need a down payment of at least 3.5%. You also need a minimum credit score of 580. However, your lender may require a higher score than this if they choose. In addition, lenders often require that borrowers have at least two years of steady employment before they can approve them for an FHA-insured mortgage.
Although both conventional and FHA mortgages allow people to buy properties, these loans differ in some important ways as well. Before deciding which option is best for you, it is wise to research the requirements of each type so you can be sure you are making the right choice based on your individual financial situation.
What’s Best?
Which type of mortgage is the best option for you? This depends on several factors, including your credit score and down payment amount. If you have a good credit score and a sizeable down payment, then you may be able to qualify for a conventional mortgage. However, if your credit or finances are less than stellar, an FHA loan might be more appropriate for your needs. You should also consider other aspects like paperwork requirements, loan terms, repairs (sometimes required by FHA) and interest rates when making this decision.
Start with Pre-Qualification
Before you begin the process of shopping for a home, it’s a good idea to get pre-qualified. This will give you a better idea of how much money you can borrow and what type of interest rates to expect. Pre-qualification is generally quick and easy, and it can be done online or over the phone with most lenders.
If you’re not sure whether a conventional or FHA mortgage is right for you, reaching out to a lender for pre-qualification is a great place to start. They will be able to help you compare your options and find the best loan product for your unique needs.