The common terms that you will hear when a person wants to purchase a home are the terms conventional and FHA mortgage. Although these are very common terms not everyone really understands the difference between them. A basic understanding of a conventional mortgage and FHA mortgage will be beneficial for you. These are essential information in helping you determine which one between the two mortgages is right for you. As a person who is looking into purchasing a home, these two mortgages are both used to finance or refinance a home. The requirements between these two mortgages have similarities and distinctions.
The bottom line is that we need to take a closer look at conventional mortgage rates and FHA mortgage rates.
Credit Qualifying
conventional mortgage rates
A conventional mortgage requires a higher credit score for they are more rigid when the issue is credit worthiness. FHA on the other hand, allows a borrower with a few credit issues for this type of mortgage is not strict. This is the very reaon why it is widely used by most borrowers. FHA even allow a person to avail of a mortgage even if they have no credit history in buying a home as long as proper documentation to support these compensating factors is presented.
The Required Down Payment
When it comes to down payments, conventional mortgages require borrowers to put at least 5% while FHA only requires 3.5 %. Conventional mortgages will also require the borrower to carry mortgage insurance for the remaining 15%. So a total of 20% is a requirement for the conventional mortgage.
Mortgage Insurance Process and Approval
Process and approval of mortgage insurance of conventional mortgages is separate from a 580 credit score home loan approval. The difference with FHA from conventional is that the FHA mortgage insurance is built into their system. An annual renewal mortgage insurance premium is charged by FHA and paid monthly.
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