With a large number of financing options available for the homeowners, choosing the best option can sometimes become difficult. However to have secure financial condition it is essential to make a wise and well informed decision. Now-a-days, both FHA and conventional loans are becoming popular options because they offer a large range of benefits for the people who avail this option. So if you too are looking forward to buy a house, read on to know more about these options.
Government agencies do not guarantee conventional loans while FHA loans are guaranteed by federal government. A person can secure conventional loans from banks, credit unions or brokers. These types of loans can be obtained by paying 20% of the property value as the down payment and the qualifications for it remains strict.
FHA loans have laid less rigorous qualification terms but its payment terms are high. The federal government also guarantees to buy the house if it is about to face foreclosure. 100% coverage is offered to the borrower in case of mortgage default and thus he is required to pay a less amount of money as the down payment. First time home buyers usually opt for FHA loan over their counterpart.
Pros and cons of both type
As the conventional mortgage can be availed from a financing institute or banks, it offers the borrowers a chance to negotiate on the terms and avail higher amount as the loan amount. Along with higher down payments, the borrower is also required to have good credit score and can avail the loan at high interest rate. While opting for this type, remember to read the fine prints carefully as the lenders can include some additional clauses.
FHA loans offer the opportunity to avail loan by making low down payments. People having a history of bad credit score are also eligible for this mortgage. However there are some drawbacks of FHA loan as well. One of the major disadvantages is the mortgage insurance till the loan tenure. One of the easiest ways to get out of it is to refinance the mortgage to conventional type after having a good credit score.
Who is eligible?
A person having a good credit score can avail the conventional loan at higher rate of interest while a person who has a history of bad credits can opt for the second type. The terms and conditions of the former type may vary from lender to lender therefore it is important to compare the rates before saying a yes to a lending institute or banks.
Before you plan to avail the loan, it is essential to collect enough money which can be given as the down payment to reduce the loan amount which automatically reduces your monthly payment. Do a good research and then choose a suitable option depending upon your situation. So the next time you wish to buy a house, get pre approved on your loan to buy the house of your dreams at the earliest.
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