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Comparing a Conventional Loan Vs. FHA Loan

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buying a home aled mortgage

Which loan is best for me between Conventional and FHA? This is a very frequent question among borrowers. In the following table you can see the main differences between them:

DESCRIPTIONCONVENTIONALFHA

Minimum Down Payment*

3%3.50%
Minimum FICO Credit Score620580

Max. Debt-to-Income (DTI)**

50% / 50%45% / 55%

Mortgage Insurance***

It depends1.75%
Interest RateFixed or VariableFixed or Variable
Term in Years10, 15, 20, 25 or 3010, 15, 20, 25 or 30

Maximum Loan Amount****

$548,250

$356,362 - $608,350

*Just for First Time Home Buyers. For FHA you can also use a Down Payment of 3.5% if you are going to get a new home as a Primary Residence.

**The first percentage refers to how much of a person’s income goes toward housing costs. In other words, how much will your monthly mortgage payment (including taxes and insurance) be versus your monthly income. The second percentage refers to the total monthly obligations or liabilities versus the monthly income.

***For Conventional, if you have an equity of 20% or more, you will not have Mortgage Insurance but, if you are going to buy a home with a lower down payment, the lender will apply this mortgage insurance. Over time, when your property reaches 20% of equity, the Mortgage Insurance will be eliminated.

For FHA, if you want to buy a home with a low down payment, you will have mortgage insurance (protect the lender) for the loan term. If the loan meets certain conditions, the insurance can be withdrawn after 11 years but, normally it is for the entire term of the loan.

****The amount shown above for Conventional is for One-Unit Property. For Two-Unit property: $702,000. Three-Unit property: $848,500. Four-Unit property: $1,054,500. Loan Limits for Alaska, Hawaii, Guam, and the US Virgin Islands are higher. The amounts showed for FHA are for Florida. In Miami-Dade and Broward County, the FHA limit for One-Unit is $402,500 and $774,050 for Four-Unit.

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