Here at Simply Home Lending, we are often faced with this question from our borrowers: Should I choose a conventional loan or an FHA loan? The focus of this case study will be on one of the main differences between these two types of loans: mortgage insurance.
Mortgage insurance (MI) is an insurance policy which compensates the lender for losses due to the default of a mortgage loan. MI is typically paid monthly as part of the borrower’s mortgage payment and can have an upfront premium paid at closing, depending on the loan type. Below are the main differences between conventional and FHA loans in regards to mortgage insurance.
When taking the information above into consideration, one might ask: Why should I choose an FHA loan over a conventional loan? There are a few reasons why an FHA loan may be the best option for you. First, the minimum down payment on an FHA loan is 3.5% as opposed to 5% on a conventional loan. Second, interest rates are typically lower on FHA loans than on conventional loans. Third, FHA loans are more lenient towards borrowers with lower credit scores and higher debt to income ratios, i.e., those who may not qualify for a conventional loan.
The best way to determine which type of loan best fits your needs is to contact one of Simply Home Lending’s knowledgeable loan officers. They will help guide you through the mortgage process and show you all of the options available for your specific loan needs.