Here's a breakdown of conventional vs FHA loans
There are many types of mortgage loans for homebuyers but the most popular two are known as conventional loans and FHA loans. Choosing between them comes down to your financial situation. Here’s what you need to know about your options.
Conventional loans are not insured by the government. They are mostly backed by a local or national bank.
You won’t have to pay mortgage insurance and may end up paying less in the long term. There is also not a fixed interest rate. This loan type is helpful if you’re looking to purchase a second, vacation, or investment home as FHA loans won’t cover these property types.
Sellers may also be more likely to go with a buyer with a conventional loan vs an FHA loan since they require an extra appraisal. If any issues are found, sellers are then required to address them before closing. This means an FHA loan may result in an extra cost and could even cost a deal to fall through.
Conventional loans have historically not been an option for everyone. You need a higher credit score, income level, and a downpayment of at least 3% are needed.
An FHA loan is a government-backed mortgage option. They are ensured by the Federal Housing Administration. These loans have fixed interest and come in 15 or 30-year terms.
They are a popular option for first-time homebuyers as they require a lower minimum credit score and down-payments than a conventional loan.
Borrowers have to pay an insurance fee (called FHA mortgage insurance) since they will be putting down less than 20% upfront as a downpayment. There are two premiums—upfront and annual.
As mentioned above, sellers often prefer conventional loans to FHA loans because FHA loans require an extra appraisal. If any issues are found, sellers are then required to address them before closing can happen.
You can qualify for an FHA loan only if the following guidelines are met:
Taking on any type of loan comes with extra timelines, rules, and contingencies. When you’re in a seller’s market—like the one we’re in now—and properties are going to multiple offer negotiations, they can be a hindrance. Ribbon turns your offer into all cash for the strongest offer in real estate—one without a loan and the contingencies that come with it.
Learn more about how Ribbon can help you get the home you love by booking time with an expert.