Debating between Conventional loan vs. FHA? Which is better for you?

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It is no secret that borrowers qualify for the kind of mortgage they need according to their financial health status. Conventional loans are the typical mortgage found in the market, but some loans are insured and backed by the Federal Housing Administration. If you are in the middle of choosing between a conventional loan vs. FHA, here’s a brief overview of the two programs.

Both are home mortgages, but what are the differences between Conventional loans vs. FHA? Conventional loans

FHA loans are ideal for low and mid-income borrowers. These loans are backed and insured by the FHA and granted by approved lenders. Borrowers with a poor credit history or those with little money for a downpayment can qualify for FHA loans as the credit requirements aren’t as stringent as conventional loans. If the borrower falls below the 580 credit score, he can still be eligible for financing.

On the other hand, conventional loans are better suited for borrowers with a reasonable debt-to-income (DTI) ratio. A good DTI means that the borrower has a 36%, or lower, debt-to-income ratio. Of that number, the debt servicing of a mortgage or paying the rent should not be more than 28%. Although the maximum DTI differs from one lender to another, the good rule of thumb is the lower the DTI, the bigger chances of loan approval for the borrower. As conventional loans are not FHA approved, private financial companies like banks and credit unions offer these.
Another difference between conventional loans vs. FHA is that conventional loans can be used to finance vacation homes and rental properties aside from purchasing primary dwellings. FHA loans allow the lender to apply for a mortgage to buy or refinance single-family houses, condominiums, multifamily homes, and even selected mobile homes.
FHA loans can also offer a lower downpayment of 3.5%, while conventional loans can go 3%-20%. What will be better for you? When it comes to conventional loans vs. FHA loans, now is the best time to learn about it.