It is understandable for one to think that the process involved in buying a home is tedious and immensely draining. While there is a ring of truth to this claim, this is an optional fate. Your road to home ownership doesn’t have to be challenging. Being well-informed and prepared are key competencies in smooth-sailing real estate expeditions.
And while dreaming is free, houses certainly are not. Luckily, there are many loans available to usher individuals and families alike into real estate stability.
That said, this article will focus mainly on FHA mortgage loans stacked against conventional loans. To begin, the most significant difference between both is that an FHA loan is guaranteed by the federal government.
To clarify, the Federal Housing Administration does not extend loans themselves, nor do they whip out cash. What the FHA does is insure affiliate lenders so they are kept safe should a borrower default. Diversely, these lenders are commercial yet are FHA-approved.
On account of conventional loans not being insured by the American government, they are only able to grant their services to clients with promising and tested credit. As a result, these commercial loans demand stricter requirements and have a more rigid selection process for borrowers. The upside to this, however, is that conventional loans have smaller fees involving mortgage insurance as opposed to loans with the FHA.
Needless to say, FHA’s catch is their non-removable mortgage premium a borrower is obliged to fork out for the entire life of the loan. On a positive note, their requirements are not as stringent making it increasingly possible for more people to attain property sooner.
The math is also pretty direct with FHA. Those with a FICO credit score of at least 580 are eligible to purchase a home with only a 3.5% down payment. Those with anything less than 580 are still in the running for a loan grant, although a 10% deposit will be needed from them. Despite these terms, FHA’s standards still work better for those with less promising credit scores.
A conventional loan will demand at least 5% to 20% of a down payment and will need a credit score of at least 620 to 640 before anything is processed. As mentioned, commercial loans can potentially be more challenging to comply. If your credit rating is strong, though, this shouldn’t be a problem.
It is also important to establish what your loan is for and what kind of home you like. Will it be a brand new house? Will it be a second-hand home in need of major repairs? Or is your dream home non-existent yet, and will still need to be realized? How long do you intend to stay in your home? Answering all these questions will help you figure out an arrangement that blends well with your current finances.
To put into perspective, a borrower may choose to apply for an FHA Streamlined 203k loan should he want to purchase a home that’s damaged but will need only minor repairs. For someone looking at moving into a home that’s blemished and will need major construction work, one may opt for an FHA Standard 203k loan instead.
If you’re one who sits well with a foreseeable monotony and residential permanence, an FHA fixed-rate might just thrive with you. On the other hand, if you wish to build home equity sooner but are open to leaving your home in the next couple of years, perhaps what you should get is an FHA Adjustable-Rate Mortgages.
Truth is, many of today’s best home loans are under FHA—and for good reason! There are many more loan types and the scenarios mentioned are but only a few. That’s not to say, however, that conventional loans are bad. Both types have their pros and cons. Only, FHA’s reach is much farther. Read up on more articles that talk about the kind of homes you want and what arrangement will fly with you.
Saving in advance will also do you wonders, as there are a lot of fees that need to be paid for upfront. Once you’re sure an FHA loan is for you, finding an FHA-approved realtor should be the second thing on your list. The first thing is to make sure you qualify. So gather all your requirements and review your credit report just to be sure.