Confused About FHA Loans Or Conventional Loans? Here’s Some Help
Buying a home is an exciting as well as difficult task. Nearly everyone wants to buy a home of their own at some point in time. However, it is not always possible to finance the entire amount on our own, and as a result people opt for home loans.
When looking for mortgages, find out what the possibilities are of getting a loan in the state where you live and what borrowers need to comply with. For example, to get home loans in Texas, you will find different loan limits for various counties. This can help you decide on your budget and what kind of property (e.g., single, duplex etc.) you will be able to afford.
In addition to the above, another important decision that you need to make when opting for home loans is the type of loan that will be suitable for you. With a wide variety of home loans available such as FHA loans, VA loans and USDA loans, you might find it confusing to decide as to which one will meet your financial requirements. Read on to get more information about the various home loans available.
FHA Loans and their advantages
The Federal Housing Administration (FHA) is a part of the Federal Government’s Housing and Urban Development (HUD) department. The loans offered by the FHA are usually preferred by first time homebuyers as they require a lower down payment as compared to other loans. Borrowers need to pay a down payment of 3.5% when opting for FHA loans. This type of loan has been specifically designed for families and individuals who are in the lower income group and who do not have the capability of buying a new home.
When planning to apply for an FHA loan, there are some requirements that borrowers need to fulfill. They need to make a payment of 1.75% premium upfront which can be rolled into the total loan amount. There is a lifetime monthly Mortgage Insurance Premium (MIP) that needs to be made, which may make the loan a little expensive. Generally, the monthly MIP that is to be paid with an FHA is higher than conventional loans.
Conventional loans and their advantages
Another type of home loan that is available for you is a conventional loan. It generally refers to mortgages provided by private lenders instead of the government sponsored lenders. Borrowers need to make a minimum down payment of 5% when opting for conventional loans. The best part is that these borrowers get to pay a lower monthly PMI. However, conventional loans have stricter guidelines when it comes to income-to-debt ratios and credit scores, as compared to the other home loan options that are available.