FHA mortgage is the mortgage insured by the Federal Housing Administration. It is administered by the Department of Housing and Urban Development (HUD). The mortgage is flexible with easier-to-meet guidelines than the conventional mortgages. FHA mortgage is the leading mortgage in regards of the low down payment and it is the most preferred by the first time home buyers who doesn’t have high downpayment.
This type of mortgage requires borrowers to put down 3.5% of the value of their dream houses as a down payment and this can be from personal documented funds or other sources like a gift from relatives. FHA mortgage, having the backing of the government and covered by insurance, aims to protect lenders from possible loss of their money in case the borrower defaults.
4 Differences between FHA Mortgage and Conventional Mortgage
FHA mortgages are different from conventional mortgages for several reasons among which the following are provided.
1. Down Payment
One of the significant differences between FHA mortgage and the conventional mortgage is the amount of money required to be provided by the borrower as a down payment. FHA requires 3.5% of the house’s value as a down payment, and it must be paid from the savings, retirement accounts, or a gift from a relative.
Conventional mortgages, on the other hand, requires 5-20% of the home’s value as a down payment.
3. Mortgage Insurance
FHA charges two types of Mortgage Insurance (MI) – an upfront charge and monthly charge that the borrower pays as part of the mortgage deal. However, conventional mortgages do not require the payment of upfront insurance since it is not insured by the government.
3. Credit Score Requirement
The credit score is a significant requirement for conventional mortgages – the higher the credit score, the better the chances of being considered for the conventional mortgage and getting better interest rate. The conventional mortgages rely on the standard credit report to evaluate borrowers to prevent a default by the borrower.
Contrarily, FHA allows lower credit scores and approves mortgages based on the borrower’s complete file such as residence history, stable job history, income, debts and much more.
4. Loan amount is limited
FHA might be a great option for you if you are not looking for high-end home. There is a limit how much money you can borrow from the bank. You can always look up the loan in your county on this website as the limit is different for each county. For example, for Pinellas/Hillsborough and Pasco Florida counties, limit is $294,515 for single family home. Did you know what highest FHA loan limit is in Monroe county? That’s where Key West is! FHA limit there is $515K, it seems a lot especially after you know the limits in other FL counties but it’s all correlated to house prices. For example, average price for home in Key West is $600K when in Tampa Bay it’s only $255K.
If you are thinking about moving to Tampa Bay, Call Tampa Bay Home Experts to help you with your real estate and mortgage needs! Even if you are thinking to buy house in Key West, we can help you with financing!
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