Is a conventional loan better than an FHA loan?

I have seen a lot about how FHA loans are better than conventional loans, but what are the benefits of a conventional loan?

Update:

My husband and I both have great credit and can put more than 10% down.

9 Answers

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  • Lisa L
    Lv 6
    9 years ago
    Best Answer

    Have a loan officer show you both scenarios. That is the only way you can make the right decision. My FHA rates are always lower than Conventional. Depending on credit score & down payment you never know until you run the numbers which is cheaper. You have a financed 1% upfront MI plus monthly on FHA but sometimes the Conventional MI is much higher & makes your payment higher than FHA.

  • Anonymous
    9 years ago

    Hi Vagirlhi,

    I would take FHA any day over conventional especially in this market and here's why.

    1) You can get pretty much the same rate on an FHA loan with just 3.5% down as you could on a conventional loan with 10%+ down. In this market I would seriously question sinking a lot of money in to a home that will probably continue to depreciate in value for the next couple of years. It would make more sense to put that money in some kind of investment account where it's earning interest and offers easy access to it in the case of an emergency. Once you tie that money up in a home, it will be more difficult to get to it if you need it.

    2) FHA loans are assumable which could be a huge selling point for you down the road. Let's say 5 years down the road you need to sell and the going interest rates are 6.5%+. You have a loan at say 4.5% that is assumable, this would make your home more attractive to potential buyers.

    3) FHA has jumbo loans in high cost areas, like Fairfax. You could actually buy a home for over $700,000 with just a 3.5% down payment! - As long as you qualify, of course.

    4) If you buy using a conventional loan and do not put 20% down, you have to pass the loan underwriting requirements as well as the private mortgage insurance requirements. This means 2 opportunities for your loan to be declined. With FHA, you only have to meet the loan requirements.

    5) FHA loans offer the ability to do a streamline refinance which means less paperwork and hassle.

    You can also do a cash out refinance with FHA to 85% of the appraised value while a conventional loan will be limited to 75 to 80% of the appraised value.

    Source(s): I'm a mortgage banker/broker http://www.fhamortgagesdoneright.com
  • Anonymous
    9 years ago

    The best loan the is the one that offers the most competitive terms. How much can you put down and how much is required by the program. What interest rate are the programs offering. And what fees are the programs requiring. Fees are disguised under different terms the most common of which is called origination. If you are using an independent mortgage broker they may also insert fees. Tell the institution offering each program that you want to identify every single fee that you will be asked to pay even if they say it will be wrapped into the loan. Add up all those fees for each different loan program and that gives you the "cost of the loan" Then you have the cost, the rate, and the down required. Once you have identified those three things for each program you are shopping it will be a personal choice which program best meets your needs. FHA creates some hassles for the seller and some sellers may not be willing to participate but it is just fine for buyers.

    Source(s): Real estate investor with lots of mortgages.
  • 9 years ago

    The biggest benefit of a conventional loan is not paying pmi if you put 20% down. With an FHA loan, you will pay pmi for at least 5 years, even if you reach 20% equity.

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  • 9 years ago

    The difference is the down payment amount. Rates are usually a little cheaper on conventional but you need 20% down. You won't have to pay mortgage insurance either which reduces payment & your loan amount will be less since you are putting money down. FHA only requires 3.5% down payment but you have to pay mortgage insurance. FHA is a great first time buyer program for those who don't have 20% down.

    Source(s): 25 years mortgage lender.
  • KL
    Lv 5
    9 years ago

    It depends on the individuals situation. Where an FHA loan might be better for you, it may not be for the next person. It depends on your exact credit score, how much of a down-payment you are working with, etc.

    Source(s): I'm a loan officer
  • 5 years ago

    Is a conventional loan better than an FHA loan?

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    B.E.S.T

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  • 9 years ago

    Here is a great article discussing he pros and cons of these two loans:

  • 3 years ago

    I am curious to know more about this too

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