You may be looking to buy a house and are wondering exactly what the difference is between FHA mortgage loans and conventional loans.
While there are several differences, the first and most basic is the fact that FHA mortgages are actually guaranteed by the government, while conventional loans are not.
The fact that the government backs these FHA mortgages makes the loan less risky to the financial institution offering you the line of credit for your home purchase. Because of this, FHA mortgages feature lower down payment requirements than many of the more conventional mortgage options.
For instance, conventional loans may require between 10 and 20 percent down, while the FHA mortgage for qualified borrowers a FICO score of 580 and above may qualify for what’s known as maximum financing. This means that the down payment requirement is only 3.5% of the adjusted value of the home.
it’s important to remember that the 580 FICO score is an FHA minimum standard and that lenders may have their own individual standards. It could be that the institution you use asks for FICO scores of 620 and above for maximum financing and if you have marginal FICO scores the amount required for your down payment could increase.
FHA home loans do not allow lenders to penalize you for early payoff of your mortgage loan. You also must not be charged to get a final payoff amount or to get information that is is “essential to the payoff” as specified in HUD 4000.1 FHA lenders cannot charge you for “recording the Payoff of the Mortgage in states where recordation is the responsibility of the Mortgagee” according to this same ruling.
More conventional loans demand private mortgage insurance unless your down payment amount is large enough; FHA loans demand a mortgage insurance premium. In this area, the two are fairly similar. What is not similar is the fact that FHA home loans can’t limit your ability to resell the property as you see fit except for a 90 day restriction when the home is first purchases. This is to prohibit “flipping”.
FHA loans are also assumable with the participation of the lender. Simply put, this means that the borrower can allow someone else to “take over” the loan” at some point if needed. The lender will need to qualify the person assuming the mortgage, but the original borrower is not prohibited from seeking an FHA loan assumption if necessary.
FHA loans and more conventional loans may have varying credit standards. An FHA loan, backed by the government, may have more forgiving terms than the conventional loan written for the same amount and duration. A lot of this depends on the lender you choose, your financial qualifications and your particular circumstances.
For more information about FHA loans or mortgages, come visit our offices in Joplin, MO. We look forward to hearing from you and learning how we can serve you.