Are You Better Off with an FHA Home Loan or a Conventional Home Loan?

FHA Home Loan or a Conventional Home Loan? Three basic factors help home buyers figure out whether they are better off with an FHA loan or a conventional loan.  These include 1) your credit score, 2) how much money you have for a down payment, and 3) long-term goals.  By selecting the right mortgage program, homebuyers get a better deal.

Our skilled buyer’s agent in Colorado Springs will help you sort through lender options.  Sometimes the decision is simple.  Conventional wisdom encourages the conventional loan for home buyers who plan to keep their homes more than 5 or 10 years.  However, if a mortgage applicant has challenged credit scores, they will not qualify for a conventional loan.  Let us talk about more differences between FHA and Conventional loans.

FHA Home Loans

Mortgage applicants with challenged credit scores (580-619) will not qualify for a conventional loan, so the FHA loan is the better deal for them.  One of the biggest benefits of FHA loans has to do with down payment options.  Buyers can opt for low down payments, as low as 3.5%.  They may also use down payment assistance programs.  In fact, 100% of the down payment may be gifted to the home buyers using the FHA mortgage.

There are several programs that help buyers with down payment assistance.  One example is the Department of Veterans Affairs assistance to veterans.  It allows military to purchase homes with zero down payments.  The USDA (Department of Agriculture) offers a rural housing loan in the suburban and rural areas.  This probably excludes homes for sale in Colorado Springs city limits.

Other benefits of the FHA loan include lower interest rates and easy refinancing.  These loans are also assumable.  Nonetheless, the FHA product requires upfront mortgage insurance payments which continue for the life of the loan.   The cost adds up.  In addition, mortgages on homes acquired through the FHA loan program must be owner-occupied.

Conventional Home Loans

A conventional mortgage will cost less than an FHA product if the buyer is planning to put at least 20% down.  Conventional loans require higher credit scores and at least a minimum 5% down payment.  It does not allow for down payment assistance except for partial gifted amounts.  Normally, the interest rate is higher when using a conventional loan—unless the term is shortened to say 15 years.

Another perk in the Colorado Springs homes market has to do with the cost of the home.  A regular conventional loan can be used for properties costing up to $424,100.  If there is ever a need to refinance, the lender will require a new credit check.  These loans are not assumable, but they do not need to be owner occupied.

If you have good financial standing, then the conventional loan will probably serve you best.  It allows for some flexibility and the purchase of higher priced homes (over $271,000).  Other basic requirements for a conventional loan are as follows:

  • Credit score of 640 or more, 620 for the Conventional 97 loans
  • Down payment of at least 5%, preferably over 20%
  • Ability to put down 20% to avoid the need for mortgage insurance
  • Solid income reflected by your high debt-to-income ratio

A person with a mediocre credit score using a conventional loan will pay more because the interest rate will be higher.  However, when the home reaches 20% equity, the required mortgage insurance may be canceled.

Buyer’s Agent Colorado Springs

Specializing in superior customer service, Courlas Realty goes the extra mile to find perfect homes for sale in Colorado Springs.  For information about current listings, contact our buyer’s agent Colorado Springs office at (719) 470-0178.  Courlas Realty offers superior Rebate programs.

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