FHA vs Conventional

Conventional

  • Because the loans need to be attractive on the wholesale market, conventional loans have higher minimum credit scores.
  • These loans usually have a lower interest rate.
  • They often require 3% as a minimum down payment (instead of the 20% which is needed to eliminate the mortgage insurance)
  • Their appraisals have easier qualifications than those of FHA.
  • The mortgage insurance premium is less.
  • Many lenders offer Lender Paid Mortgage Insurance at a slightly higher interest rate so that the buyer can eliminate that extra monthly payment which is included in the total monthly payment.
  • While many think that a 20% down payment is required for all conventional loans, many lenders now offer low down payment options.

FHA

  • Generally will accept lower scores than Conventional.
  • Allow more of a seller assist,(towards the closing costs) 6% instead of 3%.
  • Requires a down payment 3.5% instead of 3%.
  • Property has tougher than conventional loan appraisal qualifications.
  • Mortgage Insurance (charged by the lenders for not having 20% down payment) is a higher monthly premium.