Question:

How to compare FHA vs conventional mortgage?

Answer:

To compare FHA vs conventional mortgage, you should go to a HUD/FHA approved lender who will answer all your questions regarding FHA loans and conventional mortgages. Usually, FHA loans are easier to get compared to Fannie Mae or Freddie Mac's loans.

In general, FHA mortgages will accept average to low credit. The 3 percent down payment can be sponsored by relatives, non profit or government agency, and some closing costs may be rolled into the loan.

Conventional mortgages will have strict guidelines and prepayment penalties and will not be assumable. In comparison, FHA mortgages are always assumable and there are no penalties if you pay off the loan earlier, or refinance. That is, if you want to sell the house you bought with FHA insured loan, the new buyer could assume the loan as it is, without paying refinancing costs; or you could refinance without paying several months' interest as penalties.

Disadvantages of FHA Loans vs Conventional Mortgages

A disadvantage of having an FHA loan is that the FHA insurance is not automatically cancelled when you reach 22% equity. However, you may be eligible for partial FHA insurance refund. Check with a HUD approved counselor if you are eligible for an FHA insurance refund in your circumstances.

Another disadvantage of FHA loans is that FHA rates will be a little higher than conventional mortgage rates, as they are lender set and are not established by the government. However, that is normal, as FHA strives to be alternative to sub-prime loans, which do come with higher rates than prime loans.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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