What Is The Difference Between An FHA & Conventional Mortgage?

The main differences between an FHA (Federal Housing Administration) mortgage and a conventional mortgage are as follows:

1. Loan Requirements: FHA loans are designed to help low-to-moderate-income borrowers who may not meet the stricter requirements of conventional loans. FHA loans have lower credit score requirements and may require a smaller down payment compared to conventional loans.

2. Mortgage Insurance: FHA loans require mortgage insurance premiums (MIP) which are mandatory for the life of the loan. Conventional loans may require private mortgage insurance (PMI) if the borrower puts down less than 20% of the purchase price, but PMI can be cancelled once the borrower reaches 20% equity in their home.

3. Loan Limits: FHA loans have limits on the maximum amount you can borrow which vary by location. Conventional loans generally have higher limits, but they may be harder to qualify for.

4. Interest Rates: FHA loans tend to have slightly higher interest rates compared to conventional loans, but the difference can vary depending on market conditions and the borrower's credit score.

5. Property Requirements: FHA loans have stricter property requirements compared to conventional loans. For example, the property must meet certain safety, security and soundness standards.

In summary, FHA loans are designed to help low-to-moderate-income borrowers who may not qualify for a conventional loan due to stricter requirements. FHA loans have lower credit score requirements and may require a smaller down payment, but they come with mandatory mortgage insurance premiums for the life of the loan. Conventional loans have higher credit score and down payment requirements but may offer lower interest rates and greater borrowing flexibility.