What's the Difference Between FHA and Conventional Home Loans?
Not that it's this way everywhere, but the Lubbock real estate market is expanding and more people are buying homes than ever it seems. If you’re a first time homebuyer, or just not particularly savvy when it comes to buying a home it’s easy to become intimidated, so you need a good real estate team to shoot you straight. Well, we are here to shoot you straight, and we are only going to cover the basics. I’m going to talk about two categories of loan options that many people consider when buying a home: FHA vs Conventional. Let’s get started with our home loan introduction.
The FHA loan is authorized by the Federal Housing Administration, and has been in place since the 1930’s helping Americans eat a piece of the American Dream pie. The purpose of this loan is to stimulate growth in the housing market by making loans more accessible and affordable. Did you hear that? That word? Accessible. This is a great option for first time homebuyers wanting to get into a home sooner rather than later.
Unlike an FHA loan, conventional home loans are not backed by a government agency, and are not insured by the government. A conventional loan is essentially a broader category for different types of home loans, such as: conforming, non-conforming, jumbo, portfolio, and sub-prime. Each of these loans are all considered “conventional.” Here’s the difference between an FHA and conventional home loan (in a nutshell):
- Easier to get approved
- Require a 3.5% down-payment
- Lower credit scores are acceptable (as low as 580)
- Loans are government-insured
- Allow for monetary gifts for down-payments
- Requires mortgage insurance
- Stricter guidelines (set by the lender)
- Can require 20% down-payment
- Requires above average credit scores
- Down-payments should be earned and saved by the borrower
- No mortgage insurance is required
Whichever loan you choose is right for you, don't forget that if you're going to be buying a home to always get pre-qualified before you begin your search. It is extremely difficult to begin searching for homes if you do not know how much you can afford, nor if you can make an offer that will seal the deal with the seller.
Hopefully, with that short and basic home loan introduction, you have a general idea of what your needs are regarding home loans. If you have any questions regarding your Lubbock House Hunt don’t hesitate to contact us to see how we can serve you in your Lubbock real estate needs.