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FHA Vs Non-FHA Insured Mortgage |
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Submitted by Sarah Paul
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Planning to apply for a mortgage loan? There are two options that you avail: a conventional home loan issued by banks, or one that is insured by the Federal Housing Administration. Both options will help you buy a home, but there are some clear differences between the two. The following is a brief overview of these variations:
Insurance
This is the defining difference. The FHA was established in 1934 by the Congress, providing insurance for mortgage lenders. So if a borrower defaults on the loan, the lender’s loss is covered by the government. Of course conventional loans can also be backed by private mortgage insurance companies, but with the FHA, this is a requirement.
Low Down Payment
One of the major benefits of getting a FHA approved mortgage is that the down payment is low (as little as 3.5% of home’s value) as compared to standard mortgages. This feature makes FHA loans attractive to first-time home buyers.
Lower Credit Score
Moving on, the FHA recently instituted a minimum credit score as part of their eligibility criteria. To qualify for FHA’s low down payment program, borrowers must have a score of 580. A score is 579 or less does not make you ineligible, but you would have to pay a higher down payment. Compare this with a non-FHA mortgage loan, where you usually need a score of at least 620 in order to lend, and a score of 740 to avoid an increase in lending fees.
Along similar lines, FHA-backed lenders need to conform to the standards set forth by the institution. Other mortgages in the U.S. usually follow conforming standards for lending set forth by Fannie Mae and Freddie Mac, which specify that a loan worth $417,000 or less is a conforming loan.
Differences in Mortgage Types
Finally, standard mortgage lenders usually service loans that rely on traditional fixed rates, or on any combination of fixed and adjustable rates, balloon payments or subprime interest rates. FHA, on the other hand, deals in only 6 types of mortgages. These are:
Fixed-rate,
Adjustable-rate
Energy-efficient,
condominium
Graduated-payment,
Growing-equity
The last two options, graduated-payment and growing-equity mortgages, can only be acquired if the applicant can prove their income will grow over time, because in these loans the payments also increase in the long run.
These were the major differences between FHA and non-FHA insured mortgages. For more information, contact:
Udoma A. Onwuachi
FHA Mortgage Specialist
NMLS 937861
Licensed Mortgage Loan Originator for Texas and New York
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