FHA vs. Conventional Loan?
I am looking to refinance a home equity loan with my existing mortgage. The bank is wanting to go FHA with 5% interest. I don't know much about loans, but our first mortgage is a conventional. What are the pros/cons to an FHA?
- Anonymous1 decade agoFavorite Answer
Sorry but David Z is wrong. With all of the risk adjustments placed on conventional mortgages the FHA option is usually better for most borrowers. Have your lender send you a loan comparison between FHA and conventional.Source(s): I'm a mortgage banker/broker
- 1 decade ago
FHA is a great program, if you have less than10-20% equity. The problem has been that not many mortgage companies could qualify for the license to originate those loans. All loans over 80% of appraised value have mortgage insurance. With Conventional the Private Mortgage Insurance is usually all paid monthly, with FHA there is an upfront fee and a monthly (the monthly is usually about 1/2 of PMI). You can also go to HUD to find more answers.Source(s): www.hud.gov
- 4 years ago
FHA loans are NOT score based but use your last 2 years credit, employment and rental history. You MUST not have any lates at all in the previous 24 month period. Additionally, no bankruptcies in the past 4 years. FHA programs the property MUST pass an inspection as well. Older homes may not pass (roof must have 5 years life left etc) Your lender should explain ALL of this to you. With the lower down payment you MIP (mortgage insurance premium) requirement will be higher that is you put more money down 10%. So in theroy, the lower interest rate may cost you more monthly. Make yourlender show you side by side BOTH programs. Then evaluate your savings and monthly costs - pick the loan that best FITS YOU. Hope this helps.
- David ZLv 71 decade ago
FHA is the inferior loan but it is for borrrowers who do not have much equity.
Your appraised value may have forced you this direction. If you have 10% equity go conventional.
Interest rate is about 1/2% higher and you have to pay 1.75% insurance fee at closing for private mortgage insurance premium.