If you’re a first time homebuyer, you’re probably confused about the difference between FHA loans and conventional loans. We’ll go over the main differences, advantages and disadvantages of each loan type:
FHA Loans are geared towards first time homebuyers, specifically. The reason why is because the qualification requirements aren’t as strict. This includes down payment, income and debt-to-income ratio requirements. The qualifications aren’t as strict because you will be paying private mortgage insurance each month to ensure you don’t default on the loan.
· You can put forth a down payment as low as 3.5%
· Low minimum credit score
· Easy to qualify
· Private mortgage insurance (PMI) for the lifetime of the loan
· Higher mortgage rates for jumbo loans
Conventional loans are typically for those who can afford to make a large down payment, who want flexibility in loan terms, or who want to buy a more expensive home than an FHA loan would allow.
· No private mortgage insurance required with 20% down
· Easy loan term changes
· More stringent qualification requirements
· Higher mortgage rates