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Jimmy Vercellino, an experienced professional with mortgage lender First Choice Loan Services, works hard to provide a personalized home loan process for you. Options include FHA and VA loans, fixed / adjustable rate mortgages, Jumbo loans and more. \n\nFirst Choice Loan Services\n7600 E. Doubletree Ranch Road #200\nScottsdale, AZ 85258\n480-800-8387\n

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conventional or fha pros and cons

Conventional or FHA? Pros and Cons

Purchasing a home is probably the largest purchase you’ll ever make in your lifetime, so

you want to get the best possible mortgage loan terms.

If you’re new to the mortgage loan process, you may be wondering whether an FHA loan

or a conventional loan would be best for you. Below is info on both types of loans as well

as pros and cons of each.

Difference Between FHA and Conventional Loans

While FHA and conventional loans both involve obtaining financing from lenders to

purchase or refinance homes, there are slight differences between the two.

Conventional loans are mortgage loans a homebuyer or potential homebuyer gets from

banks, credit unions or private lenders.

In exchange for the loan, the individual makes monthly payments that include both the

principal amount and interest.

If the borrower fails to make the payments, the homeowner can lose the home through

foreclosure. Both the lender and the borrower can lose their investment.

FHA loans are also mortgage loans that provide the homebuyer with money to purchase

a home.

However, one major difference is that FHA loans are backed or guaranteed by the Federal

Housing Administration.

With an FHA-backed loan, the lender is required to purchase mortgage insurance, which

guarantees that the lender will not lose their investment if the borrower fails to make the

payments.

Pros and Cons of FHA Loans

Pros

• Lower down payment required

• More lenient credit score requirement – consumers can get an FHA loan with credit scores

as low as 580.

• Cash and monetary gifts can be used for down payment

• Homebuyers who previously lost their homes to foreclosure can still get an FHA loan after

improving their credit scores.

• Seller can provide up to six percent of the money for closing costs.

• FHA loans allow individuals not living in the home to be co-borrowers.

allow refinancing with lower equity amounts

• Allow refinancing with lower equity amounts

• The government backs the loan

Cons

• Requires both monthly mortgage insurance and an upfront mortgage insurance premium.

• There is a limit of how much a consumer can borrow based on the location of the home.

• Mortgage insurance is much more expensive than private mortgage insurance that might

be required with a conventional loan.

• The borrower may end up paying more over the life of the loan because of the lower

requirements.

Pros and Cons of Conventional Loans

Pros

• Mortgage insurance usually not required

• More economical for borrowers with good credit scores

• Borrowers may pay less over time due to no mortgage insurance requirement.

• Loan fees can be negotiated.

Cons

• Stricter credit score requirement – Consumers must typically have credit scores of at least

600.

• Higher down payment is required.

• Sellers may help with closing costs but usually only up to three percent of the amount.

• They require a certain debt-to-income ratio.

• Because the lender determines interest rates, they can be higher than with an FHA loan.

• More criteria go into determining eligibility if borrower can’t pay at least 20 percent down

payment.

What About VA Loans?

Veterans and military personnel also have the option to purchase a home with the help

of a VA loan. A VA loan is a mortgage loan that’s backed by the Department of Veterans

Affairs. These loans also come with several benefits, including the following.

• No mortgage insurance required

• No down payment required

• Lower interest rates

• Mortgage is assumable

• No cap on the amount the homebuyer can borrow