Introduction to FHA and Conventional Loans

FHA vs Conventional loans, the first thing to understand is the basics of each type of loan. FHA loans are backed by the Federal Housing Administration, while Conventional loans are not. FHA loans are considered government-backed loans, while Conventional loans are from entities outside of the governmental scope.

FHA loans are typically offered to those with lower credit scores, or those who may not have the funds for a large down payment. They are typically easier to qualify for than Conventional loans, but they also come with certain restrictions.

Conventional loans, on the other hand, are not backed by any government agency. They usually require a larger down payment, and they typically have stricter credit score requirements. Conventional loans are typically offered to those with higher credit scores, or those who have the funds for a larger down payment.

FHA Loan Advantages

When comparing FHA vs Conventional loans, it’s important to note that FHA loans come with a few key advantages. One of the biggest advantages of FHA loans is that they are easier to qualify for. Since FHA loans are backed by the government, they typically have less stringent credit score requirements than Conventional loans. Borrowers with lower credit scores usually find that FHA loans cost less per month than a conventional loan

Another advantage of FHA loans is that they typically have lower down payments than Conventional loans. This can make them more accessible to those who might not have the funds for a large down payment. FHA loans also come with certain benefits, such as the ability to roll closing costs into the loan, and the ability to refinance at a lower interest rate.

Conventional Loan Advantages

Conventional loans come with a few key advantages as well. One of the biggest advantages of Conventional loans is that they typically offer lower interest rates than FHA loans. This can save you money over the life of the loan, which can make them a great option for those looking to save money.

Another advantage of Conventional loans is that they often have fewer restrictions than FHA loans. This can make them a great option for those who are looking for more flexibility in their mortgage. Conventional loans also typically have fewer fees associated with them, which can also save you money.

Finally, Conventional loans often have higher loan limits than FHA loans. This can be beneficial for those looking to buy a larger home, or those who are looking for more financing options.

Comparing Loan Rates

With FHA vs Conventional loan rates, it’s important to keep in mind that FHA loans typically have lower interest rates than Conventional loans. This is because FHA loans are backed by the government, and the government often offers lower interest rates than the market.

However, it’s important to note that FHA loans also come with certain restrictions and fees that can add to the cost of the loan. It’s important to compare the total cost of the loan, including the interest rate, fees, and other costs (amortization), to make sure you’re getting the best deal.

Comparing Loan Requirements

When looking at FHA vs Conventional loan requirements, you will find that FHA loans typically have less stringent credit requirements than Conventional loans. FHA loans often require a lower credit score, and they may also allow for higher debt-to-income ratios. The debt-to-income ratio must be 56.99% or less for an FHA loan while it is 45% or less for conventional loans.

It’s also good to know that FHA loans typically have lower down payment requirements than Conventional loans. FHA loans often require a down payment of at least 3.5%, while Conventional loans often require a down payment of at least 5%.

Comparing Loan funding fees

Comparing FHA vs Conventional loan funding fees, FHA loans typically come with a higher funding fee than Conventional loans. FHA loans often require a funding fee of 1.75%, while Conventional loans typically require a funding fee of 0.5%.

However, FHA loans also typically require a lower down payment than Conventional loans, which can offset the higher funding fee. Additionally, some FHA loans may be eligible for a funding fee waiver, which can make them even more affordable.

Comparing Loan Qualification

When going over both loan qualifications, typically FHA loans require a lower credit score than Conventional loans. FHA loans often require a credit score of 580 or higher, while Conventional loans typically require a credit score of 620 or higher.

Additionally, FHA loans often require a lower debt-to-income ratio than Conventional loans, 56.6% for FHA and 45% for conventional. This means that you may be able to qualify for an FHA loan with a higher debt-to-income ratio than you would for a Conventional loan.

Comparing Loan Limits

When comparing FHA vs Conventional loan limits, it’s important to note that FHA loans typically have lower loan limits than Conventional loans. FHA loans are typically capped at $331,760, while Conventional loans can go as high as $625,500 in some areas. FHA loan limit in Franklin County for 2023 will be $488,750 and conventional loan limit will be $726,200, loan amounts any higher become considered a “Jumbo” loan. 

The loan limits for FHA loans can vary depending on the area, so it’s important to check with your lender to see what the loan limits for your area are.

Comparing Loan Credit Score Requirements

FHA loans typically require a lower credit score than Conventional loans. FHA loans often require a credit score of 580 or higher, while Conventional loans typically require a credit score of 620 or higher.

Additionally, FHA loans may be eligible for a credit score waiver, which can make them even more accessible to those with lower credit scores. Some lenders may be willing to work with you on an individual basis to determine if you are eligible for an FHA loan.

Comparing Loan Closing Costs

When comparing, FHA loans typically have lower closing costs than Conventional loans. FHA loans often have fees associated with them, including the upfront mortgage insurance premium and the annual mortgage insurance premium.

However, FHA loans also typically have lower down payment requirements than Conventional loans, which can offset the higher closing costs. Some FHA loans are eligible for closing cost assistance, which can make them even more affordable. FHA mortgage insurance is mandatory regardless of the down payment amount, it can’t be canceled unless you refinance into a conventional loan. For conventional loans a private mortgage insurance is required when the down payment is less than 20%, and it may be canceled after 20% equity has been hit.

Comparing Refinancing

Concerning refinancing, FHA loans can often be refinanced at a lower interest rate than Conventional loans. This can save you money over the life of the loan and can make a great option for those looking to save money.

However, again, FHA loans typically have higher closing costs than Conventional loans, so it’s important to compare the total cost of the loan to make sure you’re getting the best deal. Don’t forget that FHA loans are eligible for closing cost assistance, which can help offset the higher closing costs.

Conclusion

When it comes to mortgages, it can be difficult to determine which type of loan is the best for you. FHA and Conventional loans both have their advantages and disadvantages but understanding them can help you make an informed decision.

When comparing FHA vs Conventional loans, it’s important to consider the interest rate, fees, loan limits, credit score requirements, and other factors. Additionally, it’s important to weigh the advantages and disadvantages of each type of loan to determine which one is the best for you.

If neither of these sound like good options, give us a call today, with 50+ years of experience and our list of people we trust in the business we will help you find your perfect loan!

The post Clearing Up the Confusion: A Guide to Comparing FHA vs Conventional Loans appeared first on sellfor1percent.

Dave: (00:03)
All right, Jaimerinski , whenever you’re ready. Give us a countdown. Three, two, Boom.

Steve: (00:11)
Beep.

Jaime: (00:13)
I don’t wanna do the intro.

Dave: (00:14)
You’re doing the intro.

Jaime: (00:17)
The *quack* do I say

Dave: (00:18)
Whatever you wanna say.

Jaime: (00:23)
Welcome back to another installation of three…

Steve: (00:27)
What, what are we installing?

Dave: (00:36)
We’re installing another episode…

Steve: (00:39)
We’re installing information.

Jaime: (00:44)
Welcome back to another information installation brought to you by Sell for 1 Percent realtors.

Dave: (00:52)
There you go.

Jaime: (00:55)
You do the intro.

Dave: (00:56)
All right, everyone. SB, I think Jaime did a about as good as he could there. So off you go. Tell us about interest rates

Steve: (01:06)
Hey guys. Welcome back to Sell for 1 Percent We’re certainly glad you’re here. And we want to wish our colleague Mike Hopper well. He is under the weather and not able to be with us this week, so take care of yourselves out there. It’s certainly going around.

Good news with interest rates. Last week we reported 6.375 on the 30 year fixed rate, rates have dropped down to 6.25. The 15 year rate from 5.875 last week to 5.625 this week. And the FHA rate from 6.375 last week down to 6.25  this week.

And we were talking a little bit here, before we got rolling; There’s an interesting thing that I think needs to be pointed out. It’s about the

Fed overnight rate

that has been raised 4 consecutive months in a row now, and interest rates. DB interest rates continue to fall even though the Fed keeps raising the overnight rate.

Dave: (02:17)
Well, I think a lot of people get confused because they see the Fed, they see the Fed, they see the Fed, and the Fed and mortgage rates are loosely tied together, but they’re not directly tied together. And so even though the Fed is raising rates, and, and we saw that back at the first of December when they raised rates three quarters of a point, and then the next day we saw interest rates and mortgage interest rates actually drop. And so over the last, you know, few days we’re seeing interest rates continue to drop and it’s a direct result of high interest rates. There’s just not enough demand for the supply of money that’s out there. And so interest rates are falling and we’ll see where they head long term. But the main thing to keep in mind here is that

the Fed overnight rate is not directly tied to mortgage interest rates.

And we should probably do a video about that.

Steve: (03:23)
Well, what a great time to get back into the market. You know, couple good things, there’s not a lot of buyers out there right now, and so

chances of you getting into a bidding war, right now, are pretty slim.

There are sellers out there that still need to sell houses and with interest rates dropping today may be a good day to get some more information by giving us a call right here at Sell for 1 Percent.

Dave: (03:49)
We had a lender on Friday, late Friday, send out a message that said

interest rates had dropped to 6%

and he just wanted us to know for the weekend. And I think you’re exactly right, SB, that interest rates are coming down. As a buyer, you may wanna look at some houses that have been on the market for 60, 70, 80, 90 days. Those sellers, obviously here during the Christmas period, have got to sell something or else they wouldn’t be on the market. And after, two, three months of not getting an offer,

you may have an opportunity to be able to buy something.

So as SB said, give us a call, we’d be happy to help.

Steve: (04:34)
(614) 451-6616, (614) 778-0826. Give us a call here at Sell for 1 Percent.

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