FHA vs Conventional Loans
Posted by: Greg Fischer Post date: December 13th, 2011Chances are, if you’re looking for a fixed rate mortgage in New Hampshire, you may qualify for more than one type of loan. If you’re a first time homebuyer in particular, you may qualify for several. Finding the one that’s best suited for your needs may be more complicated than asking your neighbor what mortgage type they have.
Two of the most common mortgage loan types are FHA and Conventional. Both offer 30 year fixed rates, variable downpayment requirements, and can be obtained from most mortgage lenders. But there are a number of key differences that may make one type better for your situation than the other when buying a new home. Here are the highlights:
Conventional:
Can be obtained with as little as 3% downpayment with strict requirements
Private Mortgage Insurance (PMI ) is required with less than 20% equity, but may be financed, paid up front, or built into the interest rate. Rate and availability is dependent on credit score.
May have fewer property requiremets
FHA
3.5% Downpayment – can be a gift from a family member
Relaxed credit requirements
Fewer cost adjustments for credit score, property type, Loan to Value
Condos need to be FHA approved, but can lend up to 96.5% without additional cost adjustments
FHA Mortgage insurance (MIP) is partially financed, and paid montly. Required for 60 months regardless of equity, but is not credit score dependent.
Why one versus the other?
In many cases, the cost adjustments on a conventional loan with a moderate credit score may make the price or rate higher than an FHA loan without the Loan Level Price Adjustments (LLPA’s). FHA is particularly well suited for people whose credit isn’t perfect, or have limited money down. Conventional pricing may be better for homes with equity, particularly if PMI isn’t required, and for those with at least 5% down and 720 or higher credit scores.
It always makes sense to compare both if you qualify. Shaking out the MI vs Cost vs Rate for both options takes a little time and understanding, but will help you arrive at the best mortgage for your new home.
