Conventional Loans and FHA Loans. What Are they? How Do They Work?
Do you know that, in America, there are 8 different types of basic mortgage loans? we have Conventional Mortgage loans, Interest-Only Mortgages, Adjustable rates Mortgages, FHA Loans, VA Loans, Combo loans, Balloon loans, and Jumbo loans. Today, we’re gonna focus on Conventional Mortgage loans and FHA loans, we will explain what they are and how they work.
- Conventional Mortgage Loans are mortgage loans that are not backed by a government agency. Conventional loans are divided into “conforming” and “non-conforming” loans. Conforming conventional loans are regulated by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
Conventional loans are issued by private mortgage lenders such as banks , credit unions and other financial institutions, which usually also provide government-insured mortgage loans.
Conventional mortgage loans can be found with a minimum down payment of 3%. Some lenders have special offers providing up to 100% financing. However, suppose you don’t put down 20% or more. In that case, the lender usually allows you to pay private mortgage insurance, which can cost between 0.3% and 1.5% of your annual loan sum.
Usually, traditional loans run for 30 years but can apply for a conventional loan of 15 or 20 years.
- FHA Loans:Federal Housing Administration (FHA) Loans are backed and insured by the Federal Housing Administration. These usually have a lower down payment rate available for those eligible. They’re often thought of as a first-time homebuyer loan. Still, they’re suitable for everyone, particularly people who have a lower debt-to-income ratio or don’t have a lot of reserve cash in the bank. They are also eligible for individuals with a less-than-perfect credit score.FHA loans often have shorter periods for people suffering from big credit problems like bankruptcy or foreclosure. The FHA loan term is three years instead of seven for foreclosure and two years instead of four years for bankruptcy.