Source:https://youtube.com/shorts/L9a6dTAl7Xw

Congratulations! You just got your pre-approval on your dream Delaware home. But now, you have been presented with two options: get an FHA loan or a conventional loan. And you may now wonder, what’s the difference between the two?

Picking a type of mortgage loan is intimidating already, even more so if you don’t understand what you are getting yourself into. Don’t worry; this guide will explain the difference between an FHA loan and a conventional loan, and the best mortgage option that fits you. Let’s jump right in. 

What is an FHA Loan?

The Federal Housing Administration Loan, or FHA Loan, is designed for first-time home buyers to help them get a housing loan even if they don’t have huge savings or they have a not-so-stellar credit score. These loans are backed by Federal Housing Administration to allow lenders to take on riskier borrowers, while also aiding home buyers in less-than-ideal cases to achieve the dream of owning a home. 

What is a Conventional Loan?

Conventional lenders, on the other hand, only approve borrowers who have well-established credit score history, solid assets, and a steady stream of income. Hence, these loans have higher barriers to entry than the FHA-backed options, and borrowers are allowed for a higher amount of loans and are usually processed faster. 

What’s the Difference?

Let’s start with the most obvious one, the down payment. For FHA, the minimum you can put down is 3.5%; for conventional loans, it’s 3%. 

Another difference between these two types of loans is the appraisal strictness. Usually, when an appraiser goes out to a home for an FHA buyer, they’re going to be a little bit more strict in regards to the red flags they may search for. All because FHA buyers are a little bit riskier due to a lack of great credit history or savings, as mentioned above. 

On the other hand, buyers under conventional loans seem to be less risky since their savings, income, and credit score records are so clear that the appraiser doesn’t tend to criticize the home buyer as much. Hence, buyers under conventional loans gain the benefit of fewer restrictions, and higher amounts of loans, with usually quicker processing times. 

Which one is right for you?

FHA and Conventional Loans are given to various borrowers depending on their financial situation, like how credit scores affect greatly on which loan type you are going to be approved for. If you have a solid credit score, have income-generating assets, and an established flow of income, definitely get a conventional loan, since you will be approved faster with higher amounts of loans and with fewer restrictions. 

But, if you haven’t built up your credit reputation, or belong to the limited income bracket, the FHA loans are there for you to still be able to be approved for a loan. Bear in mind though that there will be stricter measures upon approval, and there might be limits on your buying power under FHA loans. 

All these should be best discussed with your trusted real agent here in Loft Realty. If you’re interested to learn which loan you would qualify for, reach out to us today and we’ll connect you with a local lender that will surely fit your needs.