Conventional loans and FHA loans are two of the most common mortgages in Orlando. With many similarities and differences, it can be difficult trying to decide which loan option is the perfect fit for your financial situation. So, to help you get started, the Harper Mortgage Team has listed the key differences between FHA and Conventional Loans.
An FHA loan is a government-backed loan that is administered by the Federal Housing Administration. This means it is insured by the government so the lender is protected in case the borrower were to default on their mortgage payments.
An FHA loan is an excellent choice if you have a low income or a low credit score because the requirements to get approved for a loan are much more relaxed than traditional mortgages. There is a minimum down payment requirement of only 3.5% if your credit score is at least 580. You could also qualify for an FHA loan if you have a credit score as low as 500, however, you will be required to pay at least 10% of your down payment.
The downside to paying less than 20% of your down payment is that you will be required to obtain private mortgage insurance (PMI). This is an additional insurance policy that is paid for by the borrower but it only protects the lender. Since paying less than 20% of your down payment considers you to be a high-risk borrower, you will need to pay for PMI to insure the lender if you miss a payment.
A conventional loan is one that follows the Fannie Mae and Freddie Mac mortgage guidelines and is not insured by the government. This means that interest rates are generally higher and the requirements for a loan are more strict because the lender is not insured by the government.
To qualify for a conventional loan, your credit score should be at least 620. However, this largely depends on your Orlando mortgage lender. Some lenders are known to offer a conventional loan if your score is less than 620, and some lenders have a minimum requirement of 680. Talk to your local lender for more specific details regarding credit score requirements for a conventional loan.
For a down payment, you can pay as little as 3% with a conventional loan, however, you will still be required to get PMI.
For more details on FHA or conventional loans, or to get started on your application today, contact your Orlando Mortgage lender, The Harper Mortgage Team, at 407-614-3095.