The main difference between FHA home loans and Conventional home loans

For many people, understanding the many different mortgage programs can be tough especially since there are many different home mortgage programs that a person can pick out from.

Two of the most common mortgage programs are FHA home loans and Conventional Home Loans.

Many home buyers are unsure whether to go with a FHA mortgage loan  compared to a conventional home mortgage loan.  Each borrower’s situation is different so what is good for one borrower might not be the best option for the other borrower.

It is important for the person to understand the differences between FHA home mortgage loans and conventional home 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 home mortgage loan.  Each person is limited to only one FHA mortgage  and you cannot do a FHA home loan on an investment property.  Conventional mortgage loans can be used to purchase a primary, second or investment home.  Both FHA loans and conventional home loans can be used to purchase or refinance a house . 

Down Payment Differences

FHA does require a smaller down payment, but the closing cost for a FHA mortgage 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 mortgage 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 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.

Home Mortgage Loan Size Differences

FHA home limits are set by HUD, for example in most of Texas, the upper limit FHA mortgage is $271,050.  Conventional mortgages have a maximum mortgage 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 loan program best meets your needs.