As the housing market opens up, more first-time home buyers are looking to enter. Unless you are paying cash for the house, you will need a mortgage. There are two main types of mortgages available; FHA (Federal Housing Administration) and conventional. The main advantage of a FHA vs conventional loan is that the credit qualifying criteria for a borrower are not as strict as conventional loan financing and the down payment or Equity requirements are less. In comparing a purchase money FHA loan against a Conforming or A paper loan, the FHA loan will generally have the least amount of money required to close and the lower payment. FHA Loans will allow the borrower who had previous "credit issues" or those without a credit history to buy a home. FHA loans also require a lower down payment. Most conventional loans require a 20% down payment where FHA only requires 3.5%
One drawback to FHA loans is that the loan limits set for FHA loans are typically less than the loan limits for conventional financing in most parts of the country. If a borrower is looking for a mortgage that exceeds the FHA loan limits for the area, the borrower would have to put additional money down on the property or finance under a conventional mortgage. Under the 2008 stimulus package FHA loan limits have been raised in many areas and FHA offer FHA Jumbo Loans. Also,conventional financing does not require an upfront mortgage insurance premium when a borrower closes on the loan. With FHA financing, that fee for a 30 year loan is 1.75% of the loan amount that the borrower can wrap into the mortgage.
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