How Is an FHA Loan Different Than a Conventional Loan?


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The credit, financial history and down payment requirements are looser for FHA loans. However, the FHA caps loan amounts based on county property values, and mortgage insurance is mandatory, which is not necessarily the case with conventional loans. FHA lenders also typically offer only standard 30-year loans, explains SFGate.

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How Is an FHA Loan Different Than a Conventional Loan?
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The FHA requires that borrowers have a credit score of at least 620 to qualify instantly for a loan. However, a lower score does not necessarily disqualify applicants, reports SFGate. The requirements for applicants with bankruptcies or foreclosures are also looser than for conventional loans: The law allows potential FHA borrowers to apply one to two years following a bankruptcy and three years following a foreclosure.

The down payment on an FHA loan is 3 to 4 percent of the purchase price unless the home is more expensive than other homes in the same county, says SFGate. Since FHA loans are tied to county property values, a borrower who buys a more expensive home must come up with the difference, says Demand Media. Conventional loans sometimes require as much as 30 percent of the price as a down payment but generally do not limit the amount of a loan. FHA lenders also allow applicants to use a gift of money as a down payment, which commercial lenders do not permit.

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