If you’re planning to buy a home, you may be considering an FHA loan or a conventional loan. Both have their advantages, but which one is better for you? Let’s compare their key differences.
1. Overview of FHA Loans
- Designed for first-time homebuyers.
- Requires only a 3.5% down payment (with a credit score of 580+).
- More lenient credit score requirements.
- Requires mortgage insurance (MIP) for the life of the loan.
2. Overview of Conventional Loans
- Typically requires a 5% to 20% down payment.
- Requires a credit score of 620+.
- No mortgage insurance required with a 20% down payment.
3. Key Differences
| Feature | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Credit Score | 580 (3.5% down) | 620 |
| Down Payment | 3.5% | 5%-20% |
| Mortgage Insurance | Required for life of loan | Required if < 20% down |
| Loan Limits | Lower limits | Higher limits available |
| Ideal For | First-time buyers, low credit score | Buyers with strong credit & savings |
Conclusion
Choose an FHA loan if you have a low credit score or minimal savings. Go for a conventional loan if you have a strong credit profile and can afford a higher down payment.