FHA vs. Conventional Loan…What Is The Difference And What Is Best For You?

FHA is a government insured loan (meaning the government actually backs the loan in the event of default). FHA only requires 3.5% down which is a huge plus especially for first time home buyers. Most banks will lend on FHA loans as long as credit is over 640 (some banks will go lower) and some level of credit is established.

Typically banks want to see 2-3 tradelines (credit card, car payment, student loan payment, etc) for 12 months. This shows them you’ve managed credit/debt. The rates tend to be as good or even better than conventional. The down side is with new rules as of 2013 the monthly PMI never goes away as long as you have the loan. PMI is calculated at a rate of 1.35%…so on a $100,000 loan the PMI is $1350 a year….or $112.50 a month. That’s a big payment to add on to your mortgage.

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