Which home loan is better FHA or CONVENTIONAL?

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  • 9 years ago
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    FHA and conventional loans are two different programs with two different target markets.

    Conventional- usually for the better qualified borrower. The credit, income, down payment requirements are more strict. It has higher loan amounts and, if your LTV is over 80% MI is cheaper and can be dropped once the loan balance is less than 80% of the property value. If you have little credit or bad credit, exceptions are harder to come by. Sources of down payment are also more lenient- FHA allows more to be from gifts.

    FHA-is government insured and, while it was traditionally for first-time home buyers that is not a requirement; however, there are more rules on owner occupation. You can sell your first home and pay off the FHA loan and still do an FHa on your next home (rules do apply though). For people with poor credit or little credit, there is more leniency (credit score minimum is 500 whereas Fannie and Freddie have minimums of 680), they allow you to carry more debt (41% of your monthly income whereas the conventional, especially now are holding to 38%), you can borrow a higher percentage (97% loan to value is the norm whereas conventionals are 80% plus, in conventional loans the mortgage insurance companies can deny you even if the lender approves your loan. FHA has one approval process so if you have an 80% loan to value or a 90%, you don't have to worry about another set of qualification standards to meet.). FHA will permit you to get the entire down payment from gifts whereas fannie and freddie will not. FHA does not do second home or investment loans, they have longer owner occupancy requirements, they have different requirements for the appraisal (there is though a rehab loan program that allows people to buy homes with problems and borrow the purchase price plus the rehab costs), MI on FHA is more expensive and cannot be dropped even if you pay off a large chunk of the principal or the property value increases.

    It comes down to FHA is a government insured program whose mission is to help as many people as reasonably possible to have a chance at owning a home. Conventional loans are a business profit making prospect and,they are only going to do loans where the investors will make a profit amd not lose their investment so they want the "safer" loans.

  • 9 years ago

    It depends on what you're looking for and what you qualify for. You may have to speak to a loan agent first. They will let you know what you qualify for. If you qualify for both and you're a first time home buyer I would go with FHA because an FHA loan will get you a low down payment (3.5%) and you will get a home that is move in ready since an FHA is a goverment loan they won't loan the money unless the home is in great condition. If you're looking for a fixer upper than you may go with a conventional loan, more money down but you may be able to get a good deal and you have a lot more options. Since there are very little amount of homes,depending where you live, that qualify for an FHA loan.

    Source(s): Working with a loan agent to purchase my first home
  • Rachel
    Lv 4
    4 years ago

    What price condo in New York? If you qualify for an A paper conventional loan, especially conforming, those are the very best rate/cost tradeoffs. Always. VA and FHA are good for low to zero down payments, or marginal to poor credit, but have an absolute limit of $417,000 (conforming loan limit). If you've got a $25k down payment on a $600k condo right now, you're SOL as far as VA and FHA go. I can't think of a situation where FHA beats VA. VA has no financing insurance requirement, and can even roll up to 3% closing costs in, if you need to. If that condo is anything up to $250k (10% down), you're likely to get a better loan conventional. If it's over (but you can still afford the loan), A VA is likely to prove the best alternative. And bless you for serving!

  • 9 years ago

    That is a question that must be answered in a certain way. An FHA loan is meant for first time home buyers and usually require only a small percentage down (3-5%). Although conventional loans require more money down, you are likely to get better pricing and interest rates.

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  • 9 years ago

    How do YOU define BETTER?

    FHA requires only 3.5% down, but usually carries higher fees and/or PMI rates. Qualifying for an FHA can be easier. See a mortgage broker and ask for rates, APR, and fees on both.

    Many conventional loans do NOT have a 20% down payment and, therefore, require PMI.

    If you have a FICO over 720, your credit is good.

  • ?
    Lv 7
    9 years ago

    Conventional of course. The lender is not as strict about the homes appearance. Meaning they don't deny you because of the need of a paint job. FHA is very strict that way.

    Also conventional is 20% down and thus no PMI monthly payment like the FHA That payment can add another 300 a month. Last is larger down payment, less you are borrowing and less you pay back in interest and principle

  • Anonymous
    3 years ago

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    RE :Which home loan is better FHA or CONVENTIONAL?

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    Source(s): For Credit and finance solutions I always recommend this site where you can find all the solutions. http://LOANSANDFINANCES.INFO/index.html?src=mkQ8ij...
  • Anonymous
    3 years ago

    It is possible, however I'm not convinced

  • Anonymous
    3 years ago

    Loved this question

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