FHA vs conventional loan? Which home loan best fits your borrowing needs? Keep reading for some reliable tips on choosing the best type of mortgage for your home purchase.
Know Your Loan Options to Compete in a Seller’s Market
There’s no arguing that real estate in Eugene, OR, is not cheap. Indeed, housing prices have continued going up over the last few years. A combination of eager buyers and relatively few homes on the market led to a seller’s market in 2020.
The best way to compete in a tight seller’s market is to secure financing before you begin searching for a home. Working with a home loan specialist to obtain mortgage approval before you start touring houses will reduce your overall stress. After all, knowing how much of a home you can finance in Eugene helps streamline your home search.
You don’t need to stress about your ability to secure a home loan. There are many loan options on the market today, and the key is to find one that suits your borrowing requirements. A mortgage expert will analyze your financial situation and explain the pros and cons of an FHA vs conventional loan.
FHA vs Conventional Loan Basics
Is there a difference between an FHA and a conventional home loan? On the surface, the loans seem similar, as they both provide the financing necessary to purchase a house. There are, however, some significant differences that might sway you in one direction or another.
FHA Home Mortgage
The Federal Housing Administration (FHA) backs mortgages to help lower, and middle-class homebuyers afford to buy a house. By guaranteeing the loans, the FHA encourages lenders to make mortgages available to people who might otherwise struggle to achieve financing.
One of the top perks of an FHA loan is that you don’t need a flawless credit history. You might be able to land a loan with a credit rating of 500, although many lenders prefer that you bring a score closer to 600. If you have somewhat iffy credit, an FHA mortgage is often the safest route to a loan.
Along with an easier time obtaining the loan, you won’t need a substantial down payment. Provided that your credit rating is at least 580, you can contribute as little as 3.5% in down payment money.
When it comes to an FHA vs conventional loan, it’s essential to keep in mind that there is a maximum loan amount. The total amount of the loan can’t be greater than the amount set for your area. Generally, more expensive housing markets enjoy higher FHA maximum loan amounts.
Conventional Home Mortgages
There are a host of conventional home mortgages that might fit your budget. Don’t be afraid to check into a traditional mortgage if you have a blemish or two on your credit record. Although lenders indeed give their best interest rates and loan terms to borrowers with excellent credit, there are terrific opportunities for many homebuyers.
Since conventional loans are privately backed, the lender assumes a greater financial risk if you default on your loan. You’ll need to convince a bank that you will faithfully pay your mortgage each month.
Lenders expect you to bring:
- A credit score of at least 620
- A down payment of at least 3% of the total purchase price
- A strong debt-to-income ratio
- Proof of income and employment
A mortgage broker can tap into a variety of conventional home loans. The benefit to you is that they can match your unique circumstances to an applicable home mortgage.
Generally, you will have more flexibility if you qualify for a conventional mortgage. For example, the loan amount can be quite a bit higher than the FHA maximum. You can also work with the lender to determine a pay-back plan that meets your needs.
FHA vs Conventional Loan: How to Choose the Right Option
There is no perfect loan that fits every borrower. Instead, there are many different home loan types, and your job is to choose the one that best fits your needs.
One of the vital things to look at is the strength of your finances and credit history. Individuals with some credit bumps will have a smoother journey to loan approval if they opt for an FHA loan. On the other hand, a conventional loan contains beneficial perks for borrowers who possess robust credit.
Also, consider how much flexibility you desire in a mortgage. A conventional mortgage might allow you to finance a pricey home in Lane County, for instance. Your loan expert will help you choose a home loan that gives you as much flexibility as possible.
The surest way to select an outstanding home mortgage is to discuss your finances and goals with a mortgage specialist. Everyone’s money situation and lifestyle are somewhat unique, and you deserve a home loan that improves your life.
Finally, when considering an FHA vs conventional loan, you’ll have many things to consider. Take the time to locate an experienced mortgage specialist who can walk you through the ins and outs of your lending options. In the end, the right loan is the one that gives you comfortable access to the house of your dreams.
You can count on the home loan specialists at Strategic Mortgage Solutions for lending advice. Contact us for unbiased mortgage assistance today.