FHA Loan vs. Conventional Loan

Are you looking to buy your first home? Congratulations! This can be an exciting, but confusing process, let's dive into the difference between alternative types of loans to help you secure the loan that best fits your needs. 

What is an FHA Loan?

An FHA loan, or a Federal Housing Administration loan, is a mortgage loan that is backed by the government but issued through a bank. Typically, an FHA loan has fewer requirements than a conventional loan. For example, an FHA loan may require a lower minimum down payment and require lower credit scores than other loans. This type of loan is specifically designed to help low-income families purchase a home rather than continue to rent.

What is a Conventional Loan?

Any loan that is not backed by the government can be considered a conventional loan. Usually,  these have lower interest rates but have more requirements. For example, you may need a higher credit score to qualify for a conventional loan.

Who is an FHA Loan Ideal for?

Let's say you have maxed out multiple credit cards and tanked your credit score, and you're in the process of building it back up, but not quite there yet. In this example, let's say that your family offered to front the down payment on a home to help you become approved for a loan so you can start making payments on a house rather than spending money on rent each month. An FHA loan may be perfect for you in this scenario, here's why:

This type of loan offers flexible credit qualifying guidelines because the Federal Housing Administration backs it. In addition, because of this backing, lenders can offer low-interest rates. All in all, this is the perfect type of loan for someone who is worried they may not check all the boxes to qualify for a conventional loan but is still looking to buy their first home.

Who is a Conventional Loan Ideal for?

Let's say you have an excellent credit score and have saved up a large amount of money for a down payment, and you are now looking to purchase a home. But, your dream home is expensive so you will require a large loan to close the deal. A conventional loan may be perfect for you in this scenario, here's why:

A conventional loan typically allows for larger amounts of money to be taken out and offers low-interest rates. In addition, if you have saved up enough for a 20% down payment, then you do not have to purchase mortgage insurance, which is another reason to go with a conventional loan.

Services with Modern Lending

If you're a first-time home buyer looking for guidance on how to navigate through the loan process, look no further than the loan professionals at Modern Lending. We have the experience needed to help you secure the perfect loan for you! Reach out today to learn more about how we can help.