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FHA Mortgage or Conventional Mortgage – Which Is Right For You?

July 28th, 2011

Over the past 5 years, the FHA mortgage has made a huge comeback. According to the U.S. Department of Housing and Urban Development, just 6 percent of new homes were financed with FHA mortgages in 2007 – by 2011 that number had jumped to nearly 25 percent.

So the question is, which is better? The FHA government-backed mortgage, or the conventional mortgage, backed by the private sector.

And like many other mortgage-related choices, it depends on your circumstances.

Here are some of the differences:

  • FHA mortgages require mortgage insurance regardless of down payment amount, while conforming mortgages do not.
  • FHA mortgages have smaller down payment requirements – 3.5 percent versus 5 percent or higher.
  • FHA mortgages have more lenient qualification criteria compared to conventional mortgages
  • FHA mortgages have lower loan limits than conventional financing.

Lastly, as shown in the chart above, FHA mortgages are prices differently. In the past, FHA mortgages typically had lower interest rates than conventional mortgages. But now, that isn’t the case.  In May of 2011, conforming 30-year fixed rates dropped to 4.5%, while FHA 30-year fixed rates were closer to 5%.

What it really comes down to is your financial position when you’re choosing between an FHA mortgage and a conventional mortgage.  If you have stellar credit and some money saved up for a down payment, you may want to go with the conventional loan because you’ll get the best mortgage rate.

On the other hand, if your credit isn’t perfect and you don’t have a huge chunk of cash for the down payment, the FHA mortgage is probably best for you. Interest rates are based on risk, so less than perfect credit isn’t going to get you the best interest rate available, regardless of the mortgage product.

As you can see, the decision is a tough one. Call an Acadia Lending expert today to discuss which mortgage product is right for you.

Acadia Lending Group LLC

190 Riverside Street Unit 4B
Portland , Maine 04103

Phone: 207-899-4500

Fax: 207-899-4503

NMLS: 370636

 

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