A quick disclaimer – I’ve said it before and I’ll say it again – I’m not a mortgage broker. But I get asked about this all the time, so I’ll tell you some of the same things that I might tell a client.
The general response you’ll get from a mortgage broker is that an FHA loan allows for lower credit scores and can be easier to qualify for. However, conventional loans may not require mortgage insurance – with a large enough down payment which will reduce your monthly payment on the note. It really does depend on your individual needs and financial goals as to what you will want and sometimes you won’t have much of a choice.
When looking to finance a property, you might want to go FHA for certain monetary reasons, maybe you can’t qualify for a conventional product because you don’t have a down payment saved up. But FHA may not finance certain houses – or at minimum, may require that the property gain certain updates in order to finance.
Another thing is that most people think that only FHA loans will allow for down payment assistance programs, this is not true. You can get conventional products on a down payment assistance program and this might help release some of these types of limitations for FHA loans.
For example, a lot of people don’t realize the difference between a townhouse and a condo. If it’s a true townhouse, it typically would need to have been built as a PUD (or planned unit development), whereas a true blue condo is often part of a facility that may be used for commercial purposes. Generally speaking, FHA will not finance that type of property, so you’d have to have a conventional loan to get into that type of condo.
This is a complicated topic. There are many other differences between the two, including how the appraisals for each type of loan will affect the value of a property. Not every appraisal is the same.
But to keep this conversation focused, what you need to know first, as a buyer, is what you will qualify for based on your financial profile – which means you need to talk to a mortgage broker and get pre approved. This will dictate the search that you and I would set up for purchasing your next home.
Good luck, and please don’t hesitate to reach out if you have questions. I’ve also got a free buyer’s guide that you can download at any time on my website. The link is in the description below.
I’ll see you next time.