What is the difference between conventional loans and FHA loans?
The Federal Housing Administration provides a loan guarantee program in lieu of private mortgage insurance (a.k.a. PMI) so qualified borrowers can get a mortgage loan with a low down payment. The FHA doesn’t lend you the money, they simply guarantee the loan, so the lender doesn’t take on a financial risk by extending you credit. The most popular FHA loan has a minimum cash investment requirement of 3.5 percent (it was 3% up through 9/30/2008 but HR 3221 changed that to 3.5%). For refinancing, you can borrow up to 85% of the homes value for cash-out transactions and 97.75% for non-cash-out transactions. FHA lending guidelines are not as strict as the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). If the transaction is a home sale/purchase, sellers must pay part of the closing costs, while some of the borrower’s closing costs can be included in the loan amount. FHA loans are assumable, meaning you can transfer your loan to
