Difference between FHA and conventional loans – FHA Loan Benefits

FHA vs conventional loans

FHA and conventional loans are two types of loans available to a home buyer in the United States. With rising real estate prices, it is becoming increasingly difficult to buy a home. To aggravate FHA vs conventional the popular misery, interest rates are also on the rise. To obtain a mortgage from a bank, a person must have a deposit of about 10% of the total value of the property. Getting a home loan is tedious, and a vast majority of people rely on the expertise of a bank and readily accept the type and lending terms offered by a bank rather than conducting a search. Two different types of loans are offered to a buyer. These are FHA loans and conventional loans.

FHA Loan Benefits

FHA Loans

The Federal Housing Administration, or FHA, as it is called, reports to the Department of Housing and Urban Development. FHA loans are insurance guaranteed by the US government and the banks that approve them are assured that in the event of default, their money is safe, as guaranteed by the federal government. FHA loans were very popular in the sixties and seventies, but they lost favor when real estate prices soared, exceeding the FHA’s credit limit. That’s why FHA periodically changes its credit limit accordingly.

FHA does not provide loans or guarantee them. It insures them only to appease lenders’ fears in the event of default by the borrower. FHA loans are a way to encourage first home buyers because it takes very little down payment for FHA loans and interest rates are also more competitive than conventional loans. However, anyone who has benefited from an FHA loan cannot obtain another FHA loan as long as the previous loan is running.

Conventional loans

In the category of conventional loans, all commercial and residential loans offered by banks and other financial institutions to mortgage borrowers. These loans are the best options for a person who has a good credit history and enough money to pay a down payment. The higher the credit score, the more the borrower has the power to negotiate with the lender for a lower interest rate. Conventional loans are all loans that are not covered by any government guarantee. These loans remain in the borrower’s investment portfolio until fully repaid. There are tax benefits for homeowners who have benefited from conventional loans from banks. If the repayment history of the

Difference between FHA loans and conventional loans

While FHA loans and conventional loans are just some of the ways to use the money to buy a home, one must consider the differences between the two to determine which one is the best before applying for a home loan. Of course, not everyone can apply for an FHA loan because there are criteria to be met. Let us take a look between the differences.

fha home loan

Difference between FHA loans and conventional loans

1. A smaller down payment is required in case of FHA loan. Typically, the required down payment is around 3.5%, while in the case of conventional loans it is between 10% and 20%. This means that it is better to apply for an FHA loan if you have little money on your account.

2. Interest rates are lower in FHA loans than in conventional loans, in order to encourage first-time buyers. This is due to the guarantee given by the federal government in case of FHA loans where banks feel safer.

3. Loan fees and closing costs are lower in the case of FHA loan.

4. FHA loans are available for a person with a poor credit history while strict standards prevail in the case of conventional loans.

5. Loan limits in the case of FHA loans are much lower than in the case of conventional loans.

6. It is possible to benefit from an FHA loan after two years of bankruptcy, whereas conventional loans are only available for such a person after seven years.