What Is the Difference Between a Conventional Loan and an FHA Loan?
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FHA loans are insured by the Federal Housing Administration and conventional loans are not. FHA loans have lower credit score requirements and may allow for a higher debt-to-income ratio than conventional loans.
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Introduction
The main difference between a conventional loan and an FHA loan is that an FHA loan is insured by the federal government, whereas a conventional loan is not. If a borrower defaults on an FHA loan, the lender (the bank or other financial institution) is protected against loss. In other words, the lender can recover some or all of its money if the borrower does not repay the loan. With a conventional loan, on the other hand, the lender takes on all of the risk if the borrower defaults.
What is a Conventional Loan?
A conventional loan is a type of mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the farmers home administration (FmHA) and the Department of Veterans Affairs (VA). However, conventional loans are commonly interchangeable with “conforming loans”, since they are required to conform to Fannie Mae and Freddie Mac’s underwriting requirements and loan limits.
What is an FHA Loan?
An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). They are popular especially among first time home buyers because they allow down payments of 3.5% for credit scores of 580+. However, borrowers must pay mortgage insurance premiums, which protects the lender if a borrower defaults.
FHA loans are not just for first-time home buyers. They are available for anyone looking to buy a home, including people who have never owned a home before.
The Difference Between a Conventional Loan and an FHA Loan
There are many different types of loans available to home buyers, and in this post we’re going to take a look at the difference between a conventional loan and an FHA loan.
A conventional loan is a loan that is not backed by the government. This means that the lender is taking on more risk, and as a result, these loans often have higher interest rates than government-backed loans.
FHA loans are loans that are backed by the Federal Housing Administration. These loans often have lower interest rates than conventional loans, and they are available to home buyers with less-than-perfect credit.
Conclusion
The main difference between a conventional loan and an FHA loan is that with a conventional loan, you can avoid paying private mortgage insurance (PMI) if you put down 20% or more when you buy your home. With an FHA loan, you’ll have to pay PMI no matter how much of a down payment you make.
