Is It Better to Have an FHA or Conventional Loan?

Two of the most popular loans, FHA and Conventional loans, are often presented to homebuyers to choose between. Both have pros and cons, and both are ultimately great loans for homebuyers at any stage of their lives. But, what’s the difference? Which one is right for you?

Which is Which?

The biggest difference between an FHA and a Conventional loan is that an FHA loan is backed by the government – the Federal Housing Administration. A Conventional loan is funded entirely by a mortgage lender like a bank or private lending company like Ruoff Mortgage. This major difference trickles down into many of the features of these two loans.

FHA Loan

An FHA loan is designed for homebuyers with a low-to-moderate income. This is often why an FHA loan is attractive for first-time homebuyers. However, anyone that meets the qualifications can get an FHA loan, regardless of the number of houses they’ve bought in the past. Some major benefits: low credit requirement and low down payment.

Conventional Loan

A Conventional loan, on the other hand, is more of a universal loan. It is certainly the most popular loan type, and for good reason. Without difficult-to-navigate paperwork required by the FHA, a Conventional loan is more straight-forward and typically closes much quicker. Some other major benefits: flexible down payment options and no mortgage insurance (for qualified buyers).

Head to Head

So, how do the two compare?

FHA Loan

• Down Payment: as low as 3.5%
• Credit Requirement: as low as 620
• Mortgage Insurance: required from any borrower who puts less than 10% down. Cannot be canceled or removed.

Conventional Loan

• Down Payment: as low as 3%, but mostly commonly 20%
• Credit Requirement: as low as 640
• Mortgage Insurance: required only if the borrower puts less than 20% down. Can be removed once homeowner has paid their loan down to 78% LTV.

Making the Choice

Choosing between two great loan types can be difficult, but that’s where loan officers come in. When you speak with a loan officer, you will be able to get insight into the current housing market and up-to-date information on any changes that may affect you and your ability to get a loan.

This is why it is so important to get pre-approved. A pre-approval letter from a qualified lender like Ruoff Mortgage can help you in so many ways! First, it will give you an accurate estimate of how much money you can borrow which means it will tell you which houses you can afford to buy. Second, it gives your loan officer the tools they need to discuss your options with you, and help you decide on the best loan for you and your family. Lastly, a pre-approval letter will let sellers know that you are a serious buyer, and can prove that the loan will likely close without an issue – pushing you to the front of the line if they have multiple offers on their home.

Check out our Home Buying Guide to learn more about the home buying process from the moment you put in an offer until they day you get the keys.