When you are shopping for a home, you are likely focused on finding the right place—a home that meets your needs and has some of your wants, in a convenient location. However, just as important is making sure that the mortgage you choose to pay for this home will not cause you undue stress—today or in the future.
While there are numerous options from which to choose when obtaining a home loan, two of the most popular are the “Conventional” and the “FHA.” Discover the difference between these two common lending types and perhaps you will find that one of them is better suited to you and your borrowing needs than the other.
What is a Conventional Home Loan?
With a conventional loan, the process of buying a home is as straightforward as it can possibly be. The paperwork is usually less detailed than with an FHA loan, for example. You may only need to put down 5% or so for the loan, but you will need to obtain PMI that will increase your monthly payment. While closing on a conventional loan is fairly simple, the qualifications may be higher than other loans in terms of credit rate. You may want to consider a conventional loan if you are purchasing a second home, as this is one of the loan types that work for this.
What is an FHA Mortgage?
An FHA mortgage is offered through the Federal Housing Administration. This program is mainly designed for first time homebuyers, but it may work in other unique situations too. The biggest benefit of an FHA mortgage is that there is a very low down payment requirement (a minimum of 3.5%). Plus, the credit requirements for an FHA loan are less stringent than a conventional loan. One drawback to an FHA loan is that there are often more requirements about the home you are purchasing. Working with a loan officer is the best way to learn more about these requirements and navigate through them.
Which Loan is Best for You?
The first question you need to ask yourself is whether you have 20% to use for a down payment. If you do, you may do well with a conventional loan, since you will likely not have to use a PMI. Another consideration is your credit history. If your history is rough, you may have trouble qualifying for a conventional loan or the interest rate may be higher than what you could get from an FHA loan.
As with all major financial decisions, it is best to make them with the assistance of an expert. Reach out to us at First Liberty Financial Mortgage in Brimingham, Alabama. and we will be happy to review your unique situation and make recommendations. Our goal is to get you in a mortgage that will not only meet your needs, but help you feel confident in becoming a homeowner.