Dan Hubrich is back this week to talk to use about the difference between FHA and Conventional Mortgages. It’s some great info!
This month I want to talk about how FHA loans are different from conventional loans. FHA is not actually a lender at all. It’s a government agency (Federal Housing Administration) that simply guarantees loans. There is a misconception that FHA loans are only for first time buyers or that there are income limits. This is not the case. Anybody can get an FHA loan but you are only allowed to have one FHA loan at a time. You also have to purchase the home as an owner occupied residence. However if you’ve lived in the home for at least 1 year, you can then convert the home into a rental property and keep the underlying FHA loan in place. FHA does have county loan limits for the maximum loan amount. Advantages of an FHA loan are that they are much more lenient on credit scores. You can have a score as low as 580. Down payment requirements are less as well. Only 3.5% down is required and it can come from your own funds, retirement funds, or even from family. They are also more lenient on debt ratios. The negatives are that the mortgage insurance is a lot more than a conventional loan and it stays on the loan for the entire duration and can’t be removed when you get to 20% equity like a conventional loan can. Reach out to me for more details or if you have any questions.