What is the difference between Conventional and FHA loans?
Essentially, the difference in these two loan programs is in how the lender is protected against losses that result from default; mortgage insurance. (This is different than your homeowner’s insurance policy.) FHA loans are insured by the Federal Housing Administration. FHA requires the borrower to pay both upfront mortgage insurance (which can be financed into the loan) and annual mortgage insurance (which is added to your monthly payment), regardless of the amount of down payment. Conventional loans carry no guarantee for the lender if the borrower fails to repay the loan. For that reason, if you put less than a 20% down payment on the property, borrowers are required to pay for Private Mortgage Insurance (PMI). Mortgage insurance offers no added benefit for the borrower so ideally, you want to try to avoid paying this by putting at least 20% down on your home purchase, when possible.
Here are a few other differences:
If you have any other questions about FHA, Conventional or any other loan programs, I’m here to help.