A conventional loan and an FHA loan can both be great tools when you are in the market for a house. FHA loans can be a great source of savings for you as well as offering several other benefits. A conventional loan also has its advantages. The decision of whether to use an FHA loan or a conventional loan can sometimes be difficult. Here are a few benefits and drawbacks of each.
Conventional Loan Benefits
The big advantage of conventional loans is that they often do not come with the amount of stipulations that FHA loans do. For example, with FHA loans, if you refinance or sell your house, you will lose all of the money that you saved by going into it in the first place. Through prepayment penalties and other costs, it may actually cost you more. The rules and regulations are far less strict with conventional loans in many cases.
Conventional Loan Drawbacks
There are many things that would qualify as a drawback of a conventional loan. For one thing, it is much more difficult to qualify for a conventional loan. The bank is basing everything on your personal credit and guarantee. With an FHA loan, the government is standing behind the loan, so you are more likely to be approved. With conventional loans, you will be forced to qualify on your own merit.
FHA Loan Benefits
FHA loans have many benefits over conventional loans. For one thing, the down payment on the house will be much lower. The down payments are low enough that almost anyone can qualify. With conventional loans, you may need a lot of money in savings in order to make the down payment to get the house.
Another advantage of FHA loans is that you can secure a lower interest rate. Since the government is backing the loan for you, they will also provide you with a lower rate. Anytime you can secure a low interest rate, it is definitely to your advantage. You can save thousands of dollars over the life of your mortgage.
The approval process is also different for this type of loan. The FHA will approve more applications than a traditional lender. If you have questionable credit, you may be approved by the FHA when you would not be approved by a regular lender.
FHA loans also has more flexible repayment terms available. You can get a loan with a number of different repayment options and payment plans. Whether you want a 30-year fixed rate mortgage or a reverse mortgage, the FHA has options for you.
FHA Loan Drawbacks
The FHA is a government program and anytime you deal with government programs, you know that there will be some problems. You will have to go by their guidelines and regulations throughout the whole process. You will be saddled with prepayment penalties and other hassles that you may not be used to with a conventional mortgage lender.