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FHA vs Conventional: Which Loan Is Right For Me?


The Spire

If you are a first time homebuyer, or it’s been awhile since you closed on your last mortgage, it’s normal to wonder which loan product best meets your needs. Two of the most prevalent options are FHA and Conventional.

Conventional loans are backed by private lenders (primarily Fannie Mae and Freddie Mac) and are typically the most popular option in residential financing. Mortgage insurance is not required when down payments are 20% or more of the home’s purchase price. Appraisal standards may also be more lenient with a Conventional loan than other options.

The ideal candidate for a Conventional loan is someone who:
· Has a credit score in the mid to high 700’s (scores can be lower, but other loan types become more affordable in most cases)
· Has 3% to 20% of the purchase price for down payment
· Has not recently experienced an adverse event such as bankruptcy or foreclosure
· Expects to stay in the property long enough to allow for the Mortgage Insurance to drop off

On the other hand, an FHA loan is a mortgage that is insured by the Federal Housing Authority and may be an ideal option for first-time homebuyers, those who prefer down payment flexibility or for buyers currently building their credit or employment history. There is a higher level of risk assumed by a lender with an FHA loan due to the lower standards for credit and down payment; therefore, in every case, mortgage insurance (MI) is included with each mortgage payment for the duration of this type of loan.

An additional one-time mortgage insurance lumpsum is also added to the loan amount that you need to pay back. This is called “Up Front Mortgage Insurance”. FHA loans therefore have two types of mortgage insurance.

The ideal candidate for an FHA loan is someone who:
· Has a credit score of 580 or higher (*can possibly be less with increased down payment)
· Has 3.5% of the purchase price for a down payment, which can be gifted by a family member with an accompanying gift letter or a down payment assistance program
· Plans to use the home as their primary residence
· Is 2 years out of any former bankruptcy
· Is 3 years out of any former foreclosure
· Has at least two established credit accounts, like a credit card or car loan

Our team is ready to help you decide which loan program is right for you!

A Lending Hand for Financing Home Mortgages

Spire Financial (A Division of V.I.P. Mortgage, Inc.) brings lending expertise to you. All of our loan officers offer personalized communication for every client, guiding them through the process. We can show you ways to maximize your finances and unlock future opportunities. Spire Financial keeps you in control of refinancing, debt consolidation, and home equity. Together, we can achieve your financial goals.