Deciding Which Loan To Take Out

As soon as I realized that my personal financial picture was a little bleak, I started thinking about taking out a personal loan. I wasn't really looking forward to going into debt, but I knew that if I wanted to solve a few short-term problems, a loan would be the way to go. I talked with a few of my local financial institutions to get a good idea of what they could offer me, and then I sat down to go over the paperwork. It was incredible to see how much money I could save by securing a lower interest rate. Check out my blog for more information about loans.

Should You Go For A Conventional Mortgage Or An FHA Loan?


It could be a decision nearly every loan applicant has to make. What type of loan offers them the most ideal situation? Read on for a discussion of this common decision for loan applicants and learn more.

FHA Loans

The Federal Housing Administration (FHA) offers loans that are guaranteed by the government agency. That can make them more attractive to lenders. Only certain lenders, however, service FHA loans. Here are the main benefits of an FHA loan:

  • Lower down payments. You can get an FHA loan with as little as 3.5% down.
  • Easier approvals because of PMI (private mortgage insurance). Applicants who put down less than 20% may be required to purchase PMI by conventional lenders and many are extremely strict on buyer requirements. FHA loans, while they may require PMI as well, are not as difficult to be approved because they are backed by the government.
  • Lower credit requirements. FHA loans for those with lower credit scores mean more people will get approved. Some lenders will lower their score requirements when it comes to FHA loans, in fact.
  • Higher DTI allowed. Debt-to-income ratios are an indicator of how much of your income is dedicated to debt payments each month. The FHA doesn't state what type of DTI they need, but they are known to approve loans for borrowers who owe as much as about half of their income to debts each month.

Conventional Loans

These are loans offered by lenders that are not affiliated with any government entities. Conventional loans have one main benefit over FHA loans and that is they usually don't require PMI. That can mean the borrower is not having to budget for that extra payment added to their mortgage payment each month. However, if you use a lender that does not require you to pay the usual down payment most conventional lenders normally require, you will still need to consider the impact the PMI will have on your budget because it will be part of your mortgage.

A glance at the benefits above can show you that an FHA loan is probably going to be the best choice for many consumers. They don't have high credit score requirements, down payment requirements, or DTI standards. However, those who can pay enough of a down payment and avoid PMI might be better off going with a conventional loan to save a bit every month.

To find out more about FHA and conventional loans, speak to a mortgage broker.


27 May 2022