If you thought home purchase loans Texas are all the same, you need to know a little more about the FHA loan and the conventional home loan.

FHA loans vs. conventional home loans

Meaning

FHA loans are guaranteed by the Federal Housing Authority though the home loans are actually given by private and approved FHA loan lenders. Unlike conventional loans that are issued by banks and other financial institutes and the guarantee is the borrower’s responsibility, FHA loans are provided by approved lenders with the Federal Authority standing as a guarantor in between.

Down payment

1. The minimum down payment in case of FHA loans is about 3% though generally it is kept between 5% to 20%. The minimum down payment in case of conventional loans is 3.5%.

    

   Credit score

   FHA loans are a great relief for people with bad credit score. These loans are provided to borrowers who have low credit score – almost as low as 580 or more. Conventional loans are given only to people who have credit scores of 620 or above.

    

   Insurance

   FHA loans usually require monthly payments called Private Mortgage Insurance (PMI) in case the down payment is less than 20%. If the down payment is 10% or less, the PMI continues till the end of the mortgage term. While conventional loans require PMI mandatorily in case the down payment is less than 20%. If it is more than 20%, there is no PMI. Also, in case of FHA payments, the PMI stops (if down payment is between 10% to 20%) when the loan-to-value ratio dips to 80% or lower; and with conventional loans the PMI charges stop when the loan-to-value ratio is 78% or lower.

    

   Type of property

   With conventional loans the borrower can buy any kind of house or property. But with FHA loans, one has restricted choices. s