53_FHA-loan-Conventional-Loan

Understanding the Differences Between an FHA Loan and Conventional Loan

Most homeowners will tell you that searching for a new home is an exciting time, right up until you start looking into mortgage loans. Confusing terminology and differences in loan options leave many would-be homeowners scratching their heads and looking for help. Luckily, by taking just a few minutes to learn about the most common loan types, your home search doesn’t have to come to a screeching halt at the first mention of mortgage. Here are a few key differences between FHA loans and conventional loans.

Most Common Loans

The most popular type of loan, conventional loans usually come with fixed interest rates and terms. According to the U.S. Census Bureau, conventional loans accounted for nearly 74% of new home sales in the first quarter of 2018. FHA loans, the second most common type of loan, made up less than 12% of loans in the first three months of 2018. FHA loans are insured by the federal government and usually allow the borrower to have lower credit and make a low down payment.

Mortgage Insurance

One big difference between conventional and FHA loans is that with FHA, the borrower is required to pay an upfront insurance premium and an annual premium (usually paid as part of a monthly mortgage). With conventional loans, if a borrower makes a 20 percent down payment, no mortgage insurance is required. If, however, the borrower puts less than 20 percent down, many lenders will require the borrower to pay for private mortgage insurance to obtain the loan.

Credit Standards

Because FHA loans are insured, lenders can take on risker loans. And that means borrowers with less-than-ideal credit can qualify for this type of loan. In fact, some lenders will work with borrowers with credit scores as low as 600 on FHA loans. Conventional loans, on the other hand, usually required borrowers to have higher credit scores, usually around 620 and above.

Down Payment Amount

For conventional loans, most lenders like to see a down payment of at least 1%. But again, paying less than 20% may trigger a requirement to pay private mortgage insurance. And because FHA mortgage come with mandatory FHA insurance, lenders typically require a smaller down payment of around 3.5% of the home’s sale price or appraised value.

Looking for a new home is an exciting time. And questions about which loan is right for you shouldn’t get in the way of finding the home of your dreams. If you have questions about FHA, conventional, or any other type of mortgage loan, visit Utah First Credit Union to check current interest rates or estimate your monthly mortgage amount with a convenient online loan calculator.

News & Events
Jul 01, 2020 / Auto & RV

Just as people are wondering if now is a good time to buy a home (see last week’s blog post), many people are wondering if now is a good time to buy a car. Spoiler alert: now is a great time to buy a car. And the best reason? Utah First is celebrating the...

Jun 25, 2020 / Mortgages

As the economy begins to rebound and life starts to get back to normal, many people are still wondering whether now is a good time to buy a home. The short answer is yes. Both 30-year mortgage rates and 15-year mortgage rates are at all-time lows with 30-year rates as low as 2.625% and...

Jun 17, 2020 / Money Tips

Is there anything more fun than spending money? Vacations, home improvements, shopping sprees, fancy restaurants—there’s an undeniable thrill to experiencing something new. But in order to spend money, you have to save money first. If only it was just as fun. Here are three creative...

Corporate
200 E South Temple
Salt Lake City, Utah 84111
800-234-0729
Monday - Friday: 9:00 am - 5:30 pm
View In Google Maps
Routing & Transit Number: 324079500
NMLS # 446035

Utah First Federal Credit Union is federally insured
by the National Credit Union Administration.