What’s the difference between FHA loans and conventional mortgage loans?
Question: “I’ve been hearing a lot about FHA home loans lately, and how popular they are with home buyers right now. What is the main difference between FHA and conventional loans? Are they just easier to get?”
You’re right. They are rising in popularity right now, and you’ll soon learn why. There are actually several differences between FHA and conventional mortgages. Let’s start with some basic definitions, which will also outline one of the biggest differences between these financing methods:
- An FHA loan is insured by the Federal Housing Administration. This organization is part of the federal government, and it falls under the Department of Housing and Urban Development (HUD). You can apply for these mortgage loans through any mortgage lender that has been FHA approved.
- A conventional mortgage, on the other hand, is not insured by the government. There is no government backing at all.
That’s the primary difference between these two types of loans. Let’s talk about some more differences.
Other Differences Between FHA and Conventional
With an FHA loan, you can usually make a much smaller down payment than you’d have to make for a conventional mortgage loan. If your credit score is 580 or above, you could put as little as 3.5% down when using an FHA home loan. A conventional loan will require a larger down payment — somewhere between 5% and 20%.
This makes the FHA program popular among home buyers who don’t enough money saved up. In fact, a 2010 survey by the Home Buying Institute found that this was the #1 reason people use FHA mortgages.
The qualification process is another key difference between FHA and conventional mortgage loans. In most cases, it’s easier to qualify for an FHA loan. This appeals to people with credit scores below a certain range, or other financial problems.
Remember that the federal government insures these loans against losses resulting from default. This gives the lender a level of protection they wouldn’t have otherwise. So they are more willing to work with borrowers they wouldn’t normally deal with.
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There are also certain loan limits on FHA loans that may not apply to conventional mortgages. These are limits on the size of the loan you can obtain through this program. They are assigned by county. You can find the limits for your area by doing a search through the HUD website. Here’s the page you need.
This article covers the key differences between conventional and FHA mortgage loans. If you have additional questions about this topic, you can use the search tool at the top of this page. We have plenty of mortgage-related articles on the website, so you’re bound to find something useful.
Mortgage Loans | Brandon | 
July 31, 2010 9:27 am