Loans

Making mortgage comparison between government and conventional


When you are approaching a loan amount for owning a new or used house, there are two types of mortgages such as government mortgage and conventional mortgage. FHA stands for federal housing administration that will give you mortgage amount for buying a home. FHA is a government agency that usually allows individuals to obtain a mortgage and purchase a home soon. Even though this process is faster than others, it comes at a cost. If they can qualify for the conventional mortgage rather than government mortgage, they can save thousands over their loan life.

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Government mortgages:

FHA housing loans are actually a government mortgages which are designed to make house ownership more easily reached by relaxing eligibility requirements. They basically include allowing borrowers to purchase a house with the down payment of just 3.5 %.

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Advantages of FHA or government mortgages:

  1. The benefits of FHA loans are very strong which qualifying for one would enable a borrower to buy a house, although they could never be approved under the conventional mortgage.
  2. Even though the conventional financing now offers loans for buying a house with the down payments lower than 3 % of your purchase price, those loans or mortgages are typically income qualified. It is mostly available for the borrowers who have lower monthly income. But for many conventional mortgages, the minimum down payment is 5 %. It is higher than the government mortgage down payment.
  3. Both conventional and government loans allow some percentage of down payments on a house purchase. For the FHA loans, the down payment is 3.5 % whereas the conventional loans have 5 % down payment from the borrowers.
  4. For the conventional loans, the borrowers should have at least 620 credit score for a loan approval. But the government loans only require minimum 580 credit score from the borrowers.
  5. The closing costs are minimal on government loans than the conventional loans.
  6. Conventional loans require debt to income ratios from the buyers whereas FHA loans do not require it from them.

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Benefits of conventional mortgages:

Even though the FHA or government mortgages have such advantages, the conventional mortgages also have many benefits for the borrowers.

  1. Government house loans usually require a UFMIP premium up to 1. 35 % of the base mortgage amount. It will be later added to your loan balance. Conventional loans will not require UFMIP from the borrowers.
  2. On the FHA mortgages, private mortgage insurance (PMI) is a necessary factor across the board. But on the conventional loans, PMI is not required if the borrowers are making a down payment equal to 20 % or more of their house value.
  3. Conventional house financing usually offers a different variety of adjustable rate loans as well as mortgages for the different types of house properties.
  4. Government loans are quite strict when it comes to the house property condition. Conventional loans have only fewer restrictions on the property investments and on their requirements.

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