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FHA vs. Conventional Financing

February 8, 2012

FHA vs. Conventional Financing

There are several options that one has when purchasing a home…how many rooms, one story or two, this neighborhood or that one..remember, Location, Location, Location! Besides these obvious choices, the buyer also has a choice when it comes to financing; local bank or private mortgage broker, brick-and-mortar lender or online lending institution, FHA or Conventional? The possibilities do not end with just the physical aspects of the home itself, but rather continue through to the end of the entire transaction until the buyer is handed the keys to their new home.

The obvious pros and cons of choosing particular aspects of a home are obvious, but might not

seem so crystal clear when it comes to deciding whether to go with the increasingly-popular FHA loan or going with a conventional one instead. Knowing the basics about each one is paramount to getting the buyer into a loan that he or she will be happy with when all is said and done. Though both loans essentially serve the same purpose, each one has specific characteristics that make each one individual.
The Pros of an FHA Loan

  • Low down-payment requirement (3.5% to be exact)
  • No pre-payment penalty
  • Ability to use gift funds towards down-payment and closing costs
  • FHA loans are sometimes assumable
  • Offer funding for home improvement
The Cons of an FHA Loan
  • Loan amounts are limited according to area
  • Expensive UpFront Mortgage Premiums
  • Must have established credit to qualify
  • Rigid Mortgage Insurance structure
  • Limited loan options

Conventional Loan Pro

  • Lenders are sometimes more willing to keep loan in their portfolio, meaning more lenient underwriting guidelinesLenders might be willing to negotiate certain loan fees
  • More creative financing options

Conventional Loan Con

  • Larger down-payment required
  • Interest rates can exceed those of FHA loans
  • Lender can impose prepayment penalties and other fees
  • Loans with an LTV higher than 80% can require Private Mortgage Insurance

Depending on the borrower’s particular situation, one loan might work out better for them. The
key to closing the deal is making sure that you align yourself with a lender that can offer you a yriad

of lender programs so that you minimize the chance of alienating your client and maximize your

opportunity to gain another referral.

If you have additional questions, or have a file you would like to discuss, do not hesitate to give
us a call. Remember, keeping yourself informed of all of the latest programs can put you a step ahead
of the competition!

Written By:
Melba Baquero
Broker Associate / Mortgage Loan Originator With Platinum Mortgage Company
E-mail: Melba@
DRE 01354095/NMLS 255430


First, Complete out a loan application on our website -Go to
-Click on Apply Now at the top
-Scroll to the middle of the page and Click on 3. Full Application

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