4 Reasons To Choose A Conventional Loan Over An FHA Loan
Many people automatically believe that they should go for an FHA loan if they are a first-time homebuyer. However, there may be reason to go for a conventional home loan instead. Here are four reasons why:
- You Qualify for a Low Down Payment Anyway: If you are only interested in an FHA loan because of the low down payment, which is 3.5%, you may actually be able to receive the same thing if not a little bit less with a conventional home loan. A conventional loan can sometimes go as low as a required 3% down payment.
- You Don't Want to Pay for Mortgage Insurance: With an FHA loan, you need to hold mortgage insurance throughout the entirety of the loan. With a conventional loan, as soon as you hit 78% loan to value, the mortgage insurance can stop being paid. Of course, this is even more beneficial if you have this loan to value amount from the start. On top of this, if you do need to hold mortgage insurance with a conventional loan, the payments are monthly with no upfront cost, which is not the case with an FHA loan where the premium will need to be paid upfront.
- You Don't Want a Limit: With an FHA loan, you are going to have a limit on the amount that can be borrowed. This can really lower the number of homes you can be looking at, whereas a conventional loan will simply be based on your credit. This gives you the ability to borrow much more, which is even more ideal if you can afford it.
- Monthly Payments are Generally Lower: In general, the monthly payments to hold a conventional home loan is lower than it would be with an FHA loan. The best rule of thumb would be to compare what you are eligible for through both programs before making a decision on which is best for you.
Keep in mind that with a conventional home loan, you must have a credit score of 620 or higher. If it's lower than this, then an FHA loan may just be your only option unless it's worth it to take the time to fix your credit in order to apply for a conventional loan. Talk with a mortgage loan professional who can go over your specific qualifications to help you decide which is ultimately going to provide the best outcome for you.