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FHA vs. Conventional Mortgage: Which One Should You Choose?

FHA vs. Conventional Mortgages: Everything You Need To Know

Are you looking to purchase a home in Williamsport but don't have the money for a large down payment? If so, an FHA home mortgage may be the right option for you. An FHA loan is a government-backed mortgage that offers benefits like low-interest rates and smaller down payments.  

What is an FHA Loan? 

An FHA loan is a mortgage insured by the Federal Housing Administration (FHA). This means that if you default on your loan, the FHA will reimburse the lender for any losses. Because of this guarantee, lenders are more likely to offer loans to borrowers who may not qualify for a conventional mortgage. 

The main benefit of an FHA loan is that it offers low-interest rates and smaller down payments. The minimum down payment for an FHA loan is 3.5% of the purchase price in most scenarios. This makes an FHA mortgage a great option for first-time home buyers who may not have enough money saved up for a large down payment.
 

Why would a home buyer choose an FHA loan over a conventional mortgage? 

There are a few reasons why a home buyer might choose an FHA loan over a conventional mortgage. First, an FHA mortgage offers lower interest rates than most conventional mortgages. This can save the borrower a lot of money in the long run. 

Second, an FHA loan requires only a down payment much lower than the down payment required for most conventional mortgages. This makes an FHA mortgage a great option for home buyers who don't have a lot of money saved up. 

Finally, an FHA loan is backed by the government, which means the borrower will be less likely to lose their home if they default on their loan. 

D. Shane Whitteker is the owner and chief broker at Williamsport mortgage broker Principle Home Mortgage. They specialize in helping their clients find the mortgages that are best for each financial situation. 

“The FHA mortgage is easier to qualify for compared to a conventional loan for many borrowers,” Whitteker says. “The out-of-pocket expense is typically less with FHA, and the credit requirements are more lax. Debt to income ratio can also be much higher with FHA than conventional.   

First time home buyer, or have a credit history that’s not as established as you’d like? Whitteker says an FHA mortgage may be right for you.  

“FHA loans are a really good tool for promoting home ownership to first time homebuyers and overall younger potential home owners that are not as established as someone that is older and has been in the work force longer,” Whitteker says. 

Do sellers have a preference between an FHA loan or a conventional mortgage? 

According to Whitteker, the seller may prefer a conventional loan.   

“Sellers typically prefer conventional financing for two reasons: Lack of knowledge about FHA compared to conventional and the fact that FHA is a little bit stricter about the condition of the property.” 
 

Can I switch from an FHA home loan to a conventional loan before closing? 

It is possible to switch from an FHA home loan to a conventional loan before closing, but it is not recommended. This is because the process of switching loans can be complicated and time-consuming. It is best to speak with a lender about which type of mortgage is right for you before making any decisions. 

Is it easier to get an FHA loan or a conventional mortgage? 

Creditworthiness and minimum credit score are two important factors that prospective home buyers should consider when deciding what home mortgage loan they want to go with. An FHA home mortgage may be a good option for borrowers who have a lower credit score, as the minimum credit score requirement for an FHA loan is significantly lower than it is for a conventional loan. However, it is important to remember that an FHA mortgage comes with additional fees, so the total cost of the loan may be higher than a conventional mortgage. 

Which one has a higher interest rate, an FHA or a conventional mortgage? 

The interest rate for an FHA mortgage is typically lower than the interest rate for a conventional mortgage. It is important to understand that the interest rate may depend on other factors, such as the borrower's credit score and the amount of down payment. So, it is not always accurate to say that one type of mortgage has a higher interest rate than another. 
 

My debt to income ratio is bad. Would I be better off trying to get a conventional mortgage or an FHA loan? 

When applying for a loan, lenders will want to know the borrower's debt-to-income ratio. This calculation measures how much of the borrower's monthly income goes towards paying off debts. 

If the borrower's debt-to-income ratio is high, they may be better off applying for an FHA loan. This is because lenders are more likely to offer a conventional mortgage to borrowers with a good credit score and a low debt-to-income ratio.  

“Many times with a higher debt to income ratio, you will need to look at FHA financing as your most viable option,” Whitteker says. 
 

Can I refinance my conventional loan into an FHA loan? 

Yes, it is possible to refinance a conventional loan into an FHA loan. However, this process can be complicated and time-consuming. It would be best if you talked with your local mortgage broker about whether or not this is a good option for you. 

Whitteker says there is nothing stopping this from taking place. 

"There are no restrictions outside of loan amount here typically. The FHA loan limit is set yearly and is less than the conventional conforming loan limit.” 

Conclusion 

The FHA loan program is a good option for borrowers who may not qualify for a conventional mortgage. Although the FHA home mortgage comes with additional fees, it may be a better option for borrowers with a lower credit score or a high debt-to-income ratio.  

Getting professional advice from your local mortgage broker is an important part of the home buying process. Your broker can help you understand all of your financing options and help you find the best mortgage for your needs. 

To learn more about FHA loans, contact Williamsport mortgage broker D. Shane Whitteker at Principle Home Mortgage at (570) 980-9359. 

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