Loans are taken out for many reasons: buying a home, funding higher education, buying a car, and other large purchases. Understanding the different types of loans and what they mean for you can be overwhelming and confusing, but it doesn’t have to be! For housing, the differences between conventional and FHA loans are laid out below to help you make an educated decision.

Conventional Loans

Let’s start with conventional loans: conventional loans are used for buying a home but are not insured or guaranteed by the federal government. This means that there are no promises to the lender if you fail to repay your loan. If this seems a little odd, there’s a catch—if you don’t put down at least 20% of the down payment, you have to pay for private mortgage insurance which is there to make sure that the lender will be paid in full.

Conventional loans are available to everyone, but they are much harder to qualify for than FHA loans. For this reason, to qualify you must have good credit, have a steady income, and can afford the down payment.

FHA Loans

Differing from conventional loans, FHA loans are insured by the FHA or Federal Housing Administration. This means that the lender is guaranteed to be paid in full by the FHA if you fail to pay the loan and your house’s foreclosure doesn’t settle the debt. Since the loan is insured, there are a few benefits to choosing this type of loan, such as a low down payment of as little as 3.5%, financing of some closing costs that are included in the loan, and low closing costs.

This type of loan is much easier to qualify compared to a conventional loan because payment is guaranteed to the lender and you can have a FICO score as low as 500 to qualify, but there is a maximum loan limit depending on the area of housing. Additionally, you’ll have to pay for mortgage insurance premiums as a part of the FHA loan, as opposed to private mortgage insurance for conventional loans. The premiums that you pay go towards the Mutual Mortgage Insurance Fund which is used to pay lenders’ claims when the borrower does not pay.

Overall, the difference is government support: conventional has none and uses private mortgage insurance, while FHA has government backing and uses mortgage insurance premiums. Conventional loans are much harder to qualify for because of their private backing but have many benefits.

To choose the right loan for you, please call Emmanuel St. Germain of Choice Mortgage Bank at 561-400-7317 or visit us online at We will work with you to find you the best options available when it comes to your mortgage.

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