Conventional loans and FHA are options to people who have good credit standing. But before you decide which one is suitable for you, first, you have to know what the difference is between FHA and a conventional loan. FHA vs. Conventional loan Both FHA and conventional loans are loan offerings that will help a homeowner buy a home. The difference lies in who insures the loan and who offers it as well. What is a conventional loan? A conventional loan is not insured by the government. This is being offered by mortgage companies, banks, and credit unions. On the other hand, FHA loans are offered by lenders that are FHA approved and U.S. Federal Housing Administration insured. Borrowers of FHA loan will require mortgage insurance notwithstanding the amount of the down payment needed for the property. The premiums of mortgage insurance for FHA is the same regardless of your credit score. In terms of interest rates, conventional loans may be higher as compared to FHA loans. What’s a conventional loan? If you apply for a conventional loan, as a borrower, it is your responsibility to shell out money for your mortgage insurance if the down payment that you can afford is below 20%. The mortgage insurance for conventional loans depends on your credit standing. The lower the score the higher the mortgage insurance the borrower needs to pay. A conventional loan is guaranteed by either Fannie Mae (Federal National Mortgage Association) or Freddie Mac (Federal Home Loan Mortgage Corporation – two government-sponsored organizations. To apply, the borrower needs to fill out a mortgage application, submit required documents including credit history and the borrower’s present credit score. The requirements for conventional loans also include a submission of the borrower’s proof of income, bank, and investment states that will show that you can afford to pay for the down payment and the subsequent loan repayments. There will be other requirements that will be of the borrower so make sure to ask and prove that you are indeed creditworthy.
- Post published:June 25, 2020
- Post category:Conventional Loan