4 Differences Between a Conventional and FHA Mortgage Loan

Buying a home in New Jersey can be a big decision and a dream come true for many people. With the home buying market now being referred to as the “buyers market” there is no better time like now to buy a new home. Choosing a home to buy is the first of many steps that it takes to finalize the purchase of your new residence. The loan is the biggest step in the entire home buying process as it secures the purchase of the home.

There are different types of loans available but the two more popular home loans are the conventional loan and the FHA mortgage. Here are four differences to consider when making choice between a conventional home loan and a New Jersey FHA loan.

Credit Requirements

The effect of a person’s credit score and history is one of the biggest differences between a FHA loan and a conventional home loan. A conventional loan requires a higher credit score and a lower debt to income ratio unlike the FHA loan. This makes getting a conventional loan more difficult for people who have hit some credit speed bumps in their life. NJ FHA mortgage loans tend to be a little more lenient and pay closer attention to history of derogatory house payments instead of looking at small debts or collections that are more than two years old. A New Jersey FHA loan is usually the answer to a first time home buyer’s dreams in New Jersey. Most NJ FHA Mortgage lenders require a minimum 620 to 640 middle credit score. But to get the best FHA pricing, you will need a 660+ credit score and higher.

Down Payments

One of the first questions asked by a loan officer is whether or not you have a down payment. For a conventional home loan the required down payment is as low as 5% of the total cost of the house. A New Jersey FHA loan will accept a lower down payment ( currently 3.5% down ) . An FHA loan is also the only mortgage loan that will allow you to use a monetary gift from a relative, non-profit organization, or a governmental agency for a down payment.

Mortgage Insurance Premiums

Almost all new mortgages now require the purchaser to have mortgage insurance. This protects the lender should something happen to the borrower that impacts their ability to pay their mortgage payments. Conventional loans do not require a mortgage insurance payment at closing. With a FHA loan the mortgage insurance premium is 1.75% of the total loan amount and can be included in the total amount being financed.

Understanding the 4 differences between a conventional and a New Jersey FHA loan will help you make a better decision in which loan program to use. Buying a home is a decision that should be made with all the facts available to the buyer. Home loan facts are the most important facts of them all.