What is the difference between Conventional and FHA Home Loans?
How are Conventional and FHA Home Loans different? In short, a Conventional Home Loan is not insured by the government but how does that affect you the borrower?
When you apply for a home loan, you can apply for a government-backed loan (such as an FHA, VA or Rural loan) or a conventional loan, which is not insured or guaranteed by the federal government.
A government-backed loan is a loan subsidized by the government, which protects lenders against defaults on payments, thus making it a lot easier for lenders to offer potential borrowers lower interest rates. Its primary aim is to make home ownership affordable to lower income households and first-time buyers.
An experienced Mortgage Loan Officer can help you make that decision after running your credit and viewing your financial documents.
Conventional VS. FHA Rules:
| Conventional: | FHA: |
| Borrower has higher credit score | Borrower has lower credit score |
| Minimum down payment 5% | Minimum down payment is 3.5% |
| Loan has higher interest rates | Loan has lower interest rates |
| Max Loan Amount $424,100. | Max Loan Amount decided by County |
| DOES NOT have to be Owner Occupied | HAS to be Owner Occupied |
| NO Down Payment Assistance | Down Payment Assistance Programs |
| NO Mortgage Insurance if 20% down OR once loan is paid down to 78% loan to value (LTV) | Upfront and monthly Mortgage Insurance payment for life of the loan |
| NOT Assumable | Assumable |
| Portion of Down Payment can be a gift | 100% of Down Payment can be a gift |
