Unless you have a substantial amount of money saved up to pay cash to purchase a home, mortgage loans are the quickest way to become a homeowner.
Prospective home buyers have many choices when it comes to home loans. Two of the most popular are FHA loans and conventional loans. Wondering which loan makes more sense for you?
Our FHA Loans vs Conventional Loans guide will shed some light on this decision.
What Is a Conventional Loan?
A conventional loan is not federally backed, leaving lenders responsible for possible delinquencies. Lenders accommodate this risk by setting higher requirements for these loans. You will need a high credit score and stable income to be approved for this loan.
Lenders expect a credit score above 620. Your down payment influences the minimum credit score.
You can take out a conventional loan with as little as 3% down. However, you’ll need a higher credit score and stable income to justify the low down payment.
Lenders provide more favorable credit score minimums if you pay more upfront.
Conventional loan holders pay private mortgage insurance until they accumulate 20% equity. You can avoid this expense with a 20% down payment.
What Is an FHA Loan?
Not everyone can qualify for a conventional loan. FHA loan requirements make it easier for many people to be approved for a mortgage. These government-backed loans are a great choice for first-time home buyers or those with limited down payment funds available.
Just like a conventional loan, FHA loan approval varies based on your down payment. A higher down payment will compensate for a lower credit score.
You’ll need at least a 600 credit score to make a 3.5% down payment. Conventional loans open up to people with credit scores above 620. However, some lenders may not accept a 3% down payment unless your score exceeds 680.
FHA loans come with fewer obstacles. However, you will pay private mortgage insurance well after accumulating 20% equity.
FHA Loans vs Conventional Loans
Conventional loans offer more attractive rates and payment plans. You can ditch private mortgage insurance after achieving 20% equity. This expense won’t go away for a while if you opt for an FHA loan.
However, FHA loans remove barriers. You can qualify with less income and a lower credit score. FHA loans cater to people who can’t qualify for a conventional loan but still want to buy a home.
Get the Right Loan for Your Home
Debating FHA loans vs conventional loans provides clarity. However, you’ll still need a loan to buy the home of your dreams.
Trinity Oaks Mortgage provides loans to aspiring home buyers. We will review your information and set you up with the right loan. Explore our loan products to see how we can help.