FHA loan better than conventional loan?
What are the advantages and disadvantages?
- 1 decade agoFavorite Answer
An FHA loan can be better in certain circumstances. This loan program has historically been for first time home buyers, or young buyers with little credit history. They are insured by the federal government, so there is less risk for a lender. The disadvantage here is that you can't buy a fixer-upper as there are strict guidelines on what condition the house may be in to qualify for an FHA loan. It has to have all plumbing, cabinets, flooring, etc. Pretty much move in ready. You also can't flip a house since there are guidelines about how long you have to live in it, and how much profit you can make from a house. The interest rate will also be a little higher because of the more flexible credit requirements.
Conventional mortgages have a lot more flexibility. You can buy a fixer and flip it, and the interest rate is a bit lower. However, these loans pose a greater risk for the lender, so the credit requirements are higher. You have to have good to excellent credit to qualify. Conventional mortgages will also require a higher down payment, right now about 20% or more.
I hope this helps your search.