FHA vs. Conventional – A Home Loan Comparison

by HomeLoan.com
​While a Federal Housing Administration, or FHA, home loan is insured by the Federal Housing Administration, private financial lenders can still issue one. Basically, the lender by having more security and the borrower by enjoying lower monthly mortgage payments.

There are several reasons a potential borrower should seek an FHA loan as opposed to a conventional loan.

Easier Qualifications

FHA loan qualifications are easier to meet than conventional ones. Since the mortgage has the insurance backing of not only the FHA, but also the U.S. Department of Housing and Urban Development, or HUD, lenders are less strict as to whom they lend an FHA loan. Those with negative marks on their credit due to issues such as a bankruptcy will still find the FHA qualifying process much easier.

In order to qualify, the borrower needs to meet basic FHA requirements for credit ratings. Even though the minimum rating is generally lower than at lending and banking institutions, all applicants must have their credit check. The total mortgage cannot be higher than the maximum cap put in place by the country where the home is located. HUD’s website at http://www.hud.gov provides a list of each country’s maximum mortgage amounts.

Saves Money

The FHA’s minimum down-payment requirement is only 3 percent. This is far lower than most banks’ requirement, which ranges from 10-20 percent. By the end of the loan’s term, the borrower will have saved more because the FHA is able to offer smaller interest rates.

Better Foreclosure Protection

The FHA differs from typical private lenders because it provides wonderful resources for homeowners in the midst of financial hardships. They offers several programs tailored to people in risk of foreclosure. Also, any FHA-loan property cannot contain more than four units and every property for which the homeowner applies has to be inspected and appraised; this can be deducted from the required down payment.

Credits for Energy Efficiency

Potential homeowners who increase their home’s energy efficiency are able to roll the expense into their mortgage, allowing them to enjoy a cash surplus.

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