Question: What is the difference between FHA and Conventional Loans

Answer:

This is a question I get quite often due to the amount of misinterpretation when it comes to FHA being the  “First Time Homebuyer loan”. The main difference is FHA is backed by the government while a conventional loan is backed by “investors”. Due to the government securing FHA loans, the loan has lower requirements. So people with lower credit, recent bankruptcy, or foreclosures will be able to qualify for a FHA loan easier than a conventional loan.  Because it is easier to qualify, most "First Time Homebuyers" end up qualifying for an FHA loan even though it may not be the best option

Down Payment

• FHA minimum down payment is 3.5%
• Conventional minimum down payment is 3%

Traditionally FHA had the lower down payment amount but recently there are many conventional loan products that has a minimum down payment of 3%.

Credit Score

Conventional loan require a credit score of 620+, while an FHA loan can go as low as 540.

Mortgage Insurance vs Private Mortgage Insurance

FHA has Mortgage Insurance that last throughout the life of the loan while conventional loans private mortgage insurance will disappear after there is 20% to the property.