The Differences between FHA and Conventional Mortgages

The mortgage market can be confusing. Many people find that the differences between FHA and conventional mortgages add to the confusion. Home buyers often do not know which mortgage is best for their situation, but there is always one mortgage that is the best mortgage. Mark McDonell from Eagle Home Mortgage can answer your questions about the differences between FHA and conventional mortgages and will help you find the best mortgage. Listed below are the important differences between FHA and conventional mortgages.

THE ADVANTAGES OF FHA LOANS:

-Down payments often as low as 3 percent

-Gift money can be used for the down payment and the closing costs

-Borrowers often find it easier to qualify for an FHA loan

-No cash reserve requirements such as 3 months of mortgage payments in savings

-No prepayment penalty

-FHA lending guidelines are not as strict as some conventional loans

-FHA loans can be transferred to the new owner when you sell your home

-FHA has an Energy Efficient Mortgage Program that allows the borrower to finance energy-efficient features as part of the home purchase price

-Fixed rate mortgages are available for 15 and 30 year loans

-Adjustable rate mortgages are available

THE ADVANTAGES OF A CONVENTIONAL LOAN:

-Mortgage insurance is not required if the mortgage is 80 percent of the loan to value (LTV) or lower

-Some loans with down payments as low as 5 percent are available

-Interest rates are generally lower

-Existing mortgage insurance can be cancelled when LTV reaches 80 percent

-Available on all types of residential property

-Buyers can have more than one conventional loan

-No limit on the loan amount

-More lenders, including banks, to choose from

-More loan term options are available

-The property standards are not as strict

The differences between FHA and conventional mortgages can be summarized as the differences between the needs of the borrowers. Borrowers who are credit challenged will find an FHA mortgage easier to obtain. While the down payment can be less and gift money can be used, FHA mortgages carry a financial penalty because mortgage insurance premiums are required. This can be the biggest disadvantage of the FHA loan since this premium can be as high as 1.5 percent of the loan at closing and 0.5 percent of the mortgage amount to be paid annually for the entire life of the loan. Many borrowers find that the differences between FHA and conventional loans come down to the qualifications of the borrower and their resources.