Advantages Of Fha Loans Comparing To Conventional Loans

Advantages Of Fha Loans Comparing To Conventional Loans

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When deciding between a Federal Housing Administration (FHA) loan and a conventional loan, you need to look at how they differ and then decide which one will work best for you. The biggest difference involves your current credit rating. If you have an excellent credit history, you will probably have no problem obtaining a conventional loan, but if you have had a few credit problems you may want to consider the FHA loan.

The FHA Underwriters will look at your credit history and consider any explanations you have to offer before they make a decision on the loan. When looking at your credit score the underwriters for a conventional loan will only approve you if you meet their minimum standard. With the FHA, their minimum standard is not as strict, so you stand a better chance going with them. The FHA will even consider you for a loan if you had a bankruptcy discharged two years ago, while the conventional loan underwriters will only consider you if it was discharged at least four years ago. Whether you have credit issues or not the FHA loan might be the best for you.

Another thing you need to consider involves the cost of the loan. If you have had no past problems with your credit, the FHA loan could prove less costly. You should compare the interest rates, down payment amounts and any pre-payment penalties involved with the conventional and the FHA. Usually the FHA has no pre-payment penalties, and they have a streamline program that will make it easier for you to obtain a loan. Lower down payments and interest rates make the FHA loan a better choice.

Most conventional loans will not allow a family member to give you money for your down payment, while FHA loans do not consider a gift like this a problem. FHA loans have many advantages compared to the conventional ones, but they do have a few downsides. If you get a FHA loan, you will have to pay for mortgage insurance. For example, with a 30-year loan of $100,000 you would have to pay 1.75 percent of the loan amount, which adds up to an additional $11.51 per month. Another one of the drawbacks involves the loan limits. If the loan amount you need exceeds the limits for that specific area, you would have to figure out how to make up the difference.

To summarize, you should explore and consider the differences between a FHA loan and a conventional loan. If your credit history is anything but stellar, then you should consider going with the FHA. If you take your time and consider all the options you have available, you can make the wisest decision.

About the Author:
Still confused about mortgage? This free report will help you to better understand it. With the information included, you"ll quickly discover the real truth about mortgage landing, mortgage rates and everything else. Find out more about Long Island mortgage and loans .



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