Conventional Loan or FHA – Which is better for you?

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Conventional loans and FHA loans – which is for you? Are you a would-be homeowner in the lookout for a loan that can help you purchase your dream home? Here is what you should know between the difference of a conventional loan and the Federal Housing Administration loan or FHA. One of the most important factors in choosing which loan is best for you is your credit score. Borrowers with credit problems and cannot afford a big down payment will most likely choose an FHA loan. If you belong to the lower-income demographics, an FHA mortgage will be for you as well. Low-income individuals can apply for an FHA loan because the mortgage is offered by a financial institution or a bank that is federally approved. Another key aspect of the FHA loan is that the Federal Housing Administration insures against anyone’s loss. This guarantee gives the lenders the necessary security blanket that even if you are a loan risk, they will not go out of business if you cannot fulfill your obligation. How to get a construction loan? The catch for an FHA loan is that the borrower needs to pay the mortgage insurance premium of 1.75% upon closing. But the advantage of applying for an FHA loan aside from accepting a borrower’s lower credit score is that the down payment can be significantly lower than that of the conventional loan. For those with a credit score that is about 620 or more, a conventional loan is definitely the way to go. Because borrowers who have higher credit scores took care of their credit standing, they are allowed to take out a loan to buy not only their main residence but also a second home or a property which could be an investment for the future. Another benefit of a conventional loan, especially if you have a credit score of more than 720, is that getting a better rate is possible. The simplest difference between an FHA loan and a Conventional loan is that in the former, it is easier to apply for it as the requirements are not as stringent whereas the latter needs several documents but gives the borrower more room to be flexible.