For many, understanding the many different mortgage programs can be tough especially since there are many different mortgage programs that a home owner can pick out from.
Two of the most common mortgage programs are FHA home loans and Conventional home loans.
Many people are unsure whether to go with a FHA loan compared to a conventional home loan. Each borrower 's situation is ifferent so what is good for one borrower might not be the best option for the other person.
It is important for the borrower to understand the differences between FHA home loans and conventional mortgage loans so that you are getting into the right mortgage for your particular situation.
For the most part, FHA is designed for a first time home buyers, but anyone can have a FHA loan . Each person is limited to only one FHA home loan and you cannot do a FHA mortgage on an investment property. Conventional home mortgage loans can be used to purchase a primary, second or investment home. Both FHA loans and conventional mortgage loans can be used to purchase or refinance a home .
Down Payment Differences
FHA does require a smaller down payment, but the closing cost for a FHA loan is higher due to the upfront MI fee which is currently 2.25% of the loan amount. Conventional mortgage loans do not have an upfront MI fee. The current FHA down payment minimum is at 3.5% down while conventional loans require at least 5% down.
credit score Differences
credit scores also have a limited impact on a FHA home loan which can be great for someone whose credit score is between 620-680. Conventional home loan rates vary due to credit score. The lower the score, the higher the rate on a conventional home mortgage loan. Also, if you credit score is below 680, you might not be able to get approved for Private Mortgage Insurance. If PMI is not approved, then you must have a down payment of at least 20%.
FHA does require an escrow account while conventional home loans do not as long as you have at least 20% down.
Loan Size Differences
FHA home limits are set by HUD, for example in most of Texas, the maximum FHA mortgage loan is $271,050. Conventional home mortgage loans have a maximum loan limit of $417,000 for most states.
There are many other factors in deciding on a mortgage program. It is important to contact a loan mortgage advisor to see which home mortgage loan program best meets your needs.
David White is with the Texas Home Loan Team at Prospect Mortgage specializing in Texas home loans. We also offer many different loan programs including FHA home loans and Conventional home loans
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