Conventional or FHA financing – what is best for you?
When you’re in the market for a new home or property, it can be hard to determine which type of financing is going to suit your needs the best. While FHA, or Federal Housing Administration finance, is a preferred option for first homeowners looking to make a new home purchase, there are a lot of requirements you must meet, and not everyone will meet them. In fact, the entire process can be stressful if you haven’t enlisted the help of a mortgage or home loan expert.
Then there are conventional loans. These, too, are a preferred option, but generally by those who are interested in purchasing a second home, an investment property, are looking to refinance, or need to secure a significant amount of money. There are sometimes fewer hoops to jump through, and if you have a 20 percent deposit, you’re not required to have mortgage insurance to secure the loan.
Both types of financing have their upsides and downsides, but it’s helpful to understand what they are, and which option is going to be better for your situation. We provide this much-needed information below.
What is conventional financing?
Conventional financing, or a traditional loan, is a mortgage that is not insured or guaranteed by a government agency. For example, an FHA loan is governed by the Federal Housing Administration, a FmHA loan by the Farmers Home Administration, and a VA loan by the Department of Veterans Affairs, but a conventional loan is just that, conventional.
Typically, you can expect it to be fixed rate, with fixed terms. For the average home buyer, it can be hard to know whether this is the better option for them, but by using a new home calculator in Massachusetts, or the area you live in, you can find out whether this loan is going to be suitable for your financial situation.
There are many benefits associated with conventional financing for home mortgages. You only need a small down payment of three percent or higher, and if you offer a 20 percent deposit, you’re not required to have mortgage insurance. By opting for a conventional loan, you also benefit from a single premium, a higher loan amount, and the potential for lower monthly payments.
What is FHA financing?
A mortgage insured by the Federal Housing Administration is called an FHA loan, and such a loan encourages young people and first home buyers to get themselves onto the property ladder. You can make a down payment of just 3.5 percent if your credit score is higher than 580, and it’s formatted in such a way as to attract new buyers to the market.
There are many benefits associated with FHA loans. The deposit requirements are low, the credit score requirements are not as strict as other loan types, and you’re also not limited to the 43 percent debt-to-come ratio as is standard with a conventional loan. The best part is, the interest rate usually is lower as well.
What is best for me?
When it comes to choosing the best new home loan or refinance package to suit your requirements, it’s crucial to consult a mortgage or home loan expert. They will be able to point you in the direction of the best loan for your particular situation, all the while giving you the information to make an informed decision. If you’re looking for a large sum of money, a conventional loan might be for you, but if you’re a first home buyer who could benefit from lower interest rates, it might be beneficial to look into FHA loans. Consult an expert if you’re ready to put your foot on the property ladder.
Patriot Mortgage Company has been providing new and existing homeowners with mortgage products and services for over 20 years. With 25 years of experience in the industry, our family owned company, servicing Massachusetts and New Hampshire, is proud to offer mortgage services with a difference.
We offer quality customer service, help with refinancing, excellent programs, rates, and assistance for new or seasoned buyers. Look no further than Patriot Mortgage Company Inc to help your purchasing process go as smoothly as possible.