FHA vs Conv. Mortgage

[Zorro]

Whast the difference and what one is better?

 

[Vic]

Depends on what you are looking to do... in general:

FHA loans are government-backed (administrated through HUD) and are designed for owner-occupied purchase. They have more restrictions than "conventional" in some areas, like maximum home value (depends on your area), but tend to more lenient on credit. Typically a 3% downpayment is required, but FHA allows this to made as a gift by someone other than a direct family member or the seller. Interest rates tend to be about 0.25% higher but costs tend to be slightly less. PMI is slightly less. Home condition is more scrutinized and the appraiser cannot be chosen by the borrower, lender, or seller, but only by HUD themselves (they actually draw lots at random, true story).

Conventional loans, typically Fannie Mae (FNMA) or Freddie Mac (FHLMC) conforming, cover a wider range of products, from purchase to non-owner-occupied to cash-out refinance. For little-to-no-down purchase, credit requirements are stricter and PMI is higher. Gift downpayments must be made by a direct family member or an approved non-profit foundation. Appraiser and home condition requirements are a bit more lenient (but the appraisal will still be reviewed for market accuracy and the condition must still be acceptable). Big pluses are a better rate if you are putting more down, and no home value cap (although loan amount cannot exceed $322,700).

What specifically are you looking for?

 

[Zorro]

Vic
Thanks for the pointers. I was just looking for the pros and cons.

 

[dman]

FHA typically requires that the seller cover some of the closing costs that conventional mort. pass on to the buyer. This may or may not make any difference, as if the seller is aware of FHA issues they just don't negotiate the price of the house down as much.