If you’re trying to buy a house, you may be left wondering if a Conventional loan or an FHA loan is better. Unfortunately, there is no black and white answer to this question as each home loan has its pros and cons. While there are many pros and cons that could be discussed, here is a list of a few of the most popular pros and cons for each loan type:
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- It is easier to get approved for an FHA loan as their approval rates and requirements are easier to meet.
- Credit scores as low as 500 can still be approved for the loan allowing for more people to qualify.
- Down payments can be as low as 3.5% of the purchase price pending on your credit score, with a maximum requirement of 10% down.
- You are allowed a higher debt to income ratio; FHA loans allow your debt to income to reach up to 43%.
- Loan limits are evaluated and applied to each county country wide, this could mean you are unable to secure financing for the county you wish to purchase in without looking at options far below your desired budget.
- MIP/Mortgage Insurance Premium is automatically added to your monthly mortgage statement. This fee will be billed for the life of the loan and will not drop off unless you re-finance the mortgage to a different loan type.
- Interest rates are determined by credit scores, so those with high scores can get a lower rate.
- They have higher Loan limits which allows for more flexibility when trying to secure a property.
- No PMI/Private Mortgage Insurance is billed with the loan for those with a 20% Down Payment.
- Flexible down payment options are available and can go as low as 3%.
- Conventional loans are not available for those with low credit scores, and you need a minimum score of 620 to qualify.
- The lower your score, even if high enough to qualify for the loan, the higher your interest rate will be.
- The requirements for approval are far stricter and thus you will most likely have to provide excessive documentation to gain loan approval.
In conclusion, each loan has its fair share of pros and cons, so deciding which loan fits your specific needs the best is vital in ensuring you are getting the best financing options available to you. Make sure to speak with your lender and discuss all the options available to you with your personal qualifications and down payment amounts to help decide if you would prefer to use an FHA or Conventional loan.
If you’re currently searching for a new home, are ready to sell your home, or if you have any questions regarding New York Real Estate, please feel free to contact our office at any time and we would be more than happy to assist you.