Buying a Home FHA vs. Conventional Loan
Mortgage Interest Rates, Down Payment and Closing Costs
Federal Housing Administration or FHA falls under the authority of the U.S. Department of Housing and Urban Development or HUD. FHA loans are backed and guaranteed by the federal government. Lending institutions that provide their own home loans are usually referred to as conventional home loans. There are some benefits to FHA loans as well as conventional home loans.
Mortgage Interest Rates - FHA and Conventional Home Loans
Since the federal government backs FHA loans, the lending institutions assume very little risk compared to a conventional home loan. If a homeowner defaults on a conventional loan, the mortgage servicer can lose a substantial amount of money, if they have to foreclose on the property. Since there is more of a risk associated with a regular home loan, the interest rate can be higher than a HUD mortgage. Conventional loans that require a large down payment on the other hand, may result in lower interest rate than an FHA loan.
Down Payment – FHA and Conventional Home Loans
A down payment of 3% of the purchase price is required for most FHA mortgages. Conventional home loans usually require a much larger down payment. There is the possibility that the home seller can pay the down payment. To find out more information about the seller making the down payment, contact an FHA approved lending institution.
Loan Fees and Closing Costs
Whether the home loan is through FHA or a conventional home loan, there are fees and closing costs to consider. To make homes affordable, the FHA sets maximum limits that can be charged by the lender for loan fees and closing costs. These fees can be negotiated with the lender or the home seller. The following are items that are usually associated with loan fees.
- Loan Origination – FHA sets this limit to a maximum of the 1% of the loan amount.
- Loan Discount – This fee is typically used to lock in the interest rate.
- Appraisal Fee – Used to put a value on the home.
- Credit Report Fee – To determine the credit worthiness of the buyer.
- Lender’s Inspection Fee- A fee to inspect the home.
- Mortgage Insurance Application Fee – A fee charge to process the mortgage insurance.
- Mortgage Broker Fee
- Loan Processing Fee
- Underwriting Fee
- Wire Fee – Cost associated with wiring the funds for the loan
- Flood Certification – FHA requires a flood report to determine if the homebuyer needs flood insurance.
FHA loans are generally easier to qualify for than conventional loans. HUD backed loans usually take longer than conventional loans to process. It’s important to know that most home loans, regardless of what type of loan it is, have rules and regulations that must be adhered to.
Source:
Hud.gov
Related Articles:
Federal Mortgage Assistance Programs- A key component for Obama’s Making Home Affordable Refinance Program is to help homeowners avoid foreclosure through a federal assisted loan modification program.
The Making Home Affordable Refinance Program- What is The Making Home Affordable Program? What are the qualification requirements for a mortgage loan modification versus a mortgage loan refinance?
Buying A Home - FHA vs. Conventional Loan
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