First time homebuyers will call me asking for a FHA loan. I guess the urban myth is that there is not a low-down payment option for conventional loans. However, this is not true. Conventional loans can be obtained for as little as 3% down.
So, what results in a better option for the first-time homebuyer? It depends on the credit score. If you have less than perfect credit, then the FHA loan will likely result in a lower monthly payment. If you have good or excellent credit, the conventional loan may be the better option.
The FHA loan can be an expensive loan. It requires a minimum of 3.5% down payment. It has 2 types of mortgage insurance, up-front mortgage insurance and monthly mortgage insurance.
A conventional loan has only one type of mortgage insurance, either assessed up-front or monthly (there is also a lender paid mortgage insurance option which results in a higher interest rate).
Another big distinction between the 2 loans is that mortgage insurance stays on the FHA loan for the life of the loan. Mortgage insurance on a conventional loan can be removed after you obtain 20% equity in your home.
So, which is the better option for you? Contact us and we can walk you through your options.
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