FHA vs Conventional Loans

We get asked multiple times a week, what is the different between an FHA loan and a conventional loan? 

FHA (Federal Housing Administration) is a loan that is insured by the federal government.  These loans require a lower down payment for the buyer which can really help especially for first time home buyers that may not have a lot of money saved up.  Since there is lower risk with the FHA being backed by the government they usually have lower interest rates compared to a conventional loan.  However, since these loans are insured by the government, buyers are required to pay a private mortgage insurance that stays on the life of the loan.  Qualifying for an FHA loan is not as strict as trying to get a conventional loan and a nice advantage is that FHA buyer’s closing costs and fees can be included in the loan. 

Conventional loans are not backed by the government but are guaranteed by the buyer’s credit and finance record to repay their loan.  Since there is more of a risk with these loans for the lenders they usually have a higher down payment then the usual 3.5% for FHA.  Most conventional loans require 10%-20% down but there are that allow only 5% down.  If you do only put down 5% for a conventional loan you will also have to have mortgage insurance until you get 20% equity on your property.  At that point the mortgage insurance will drop off and you will no longer have to pay that monthly.  This is to protect the lender that is providing you with the loan.

If you are wondering if you should apply for an FHA or conventional loan contact The York Team.  We would be happy to answer any questions for you or give you recommendations for lenders that would be able to answer any questions you may have.  It’s always important to explore your different options with a reputable lender!