Advantages of FHA Loans vs. Conventional Loans

If you are considering a home mortgage loan it is best to gather your own facts rather than rely on a loan provider to inform you. Once you have gathered facts you can meet with a loan officer armed with knowledge and the proper questions to obtain the best loan product for your needs. Knowledge is power. When gathering facts it makes sense to consider an FHA loan as it compares to a conventional mortgage.

One of the main advantages of an FHA loan over a conventional mortgage is the credit requirements. An FHA insured loan allows for some credit problems. The FHA understands that circumstances arise that prevent perfect credit for most Americans. Also FHA loans are available to those with no credit history at all. Additionally, those who have been in bankruptcy as recently as two years ago may be eligible for a full loan. A loan officer or underwriter will require and explanation from you regarding the financial situation that damaged your credit and often a statement explaining that the situation is resolved and you are now prepared to move forward.

Most often underwriters of a conventional mortgage cannot be as understanding. Specific credit scores are required to qualify for a loan and a bankruptcy must have been at least four years prior to the application. Another advantage of an FHA loan over a conventional loan is found in the down payment.

An FHA down payment can be as low as 3% of the purchase price. The funds for an FHA down payment can come from many possible sources such as; a family member, a government agency, or non-profit organization. Conventional mortgages require the buyer to have money for a down payment readily available from their own funds.

The FHA does require a 1.75% upfront mortgage premium at closing which conventional mortgages do not, as well as monthly insurance premiums. However, this seems a small price to pay in order to achieve the American Dream.

The FHA sets loan limits that vary depending on the area. These limits are often lower than those of conventional mortgages. However, the FHA has recently raised its loan limits to be more competitive.

Overall, an FHA loan is a wise choice for most Americans.