FHA VS. Conventional

1. Credit qualifying criteria are not quite as strict as conventional financing. Minor credit blemishes are often acceptable to underwriting with an appropriate explanation and/or documentation. This means that borrowers that have slightly lower credit scores due to previous derogatory history (such as older collections, a bankruptcy that has been discharged for at least 2 years, or slow pays) may be granted a loan approval. Further, borrowers that have limited credit will also be considered. But similar to conventional financing, FHA does require a minimum credit score to qualify. Credit scores are generated by the credit bureaus (Trans-Union, Equifax, or Experian). For information regarding minimum credit scores, please call (512) 956-7342 or send an inquiry to info@texasfha.com.


2. FHA loans typically require a lower amount of cash from buyers at the time of closing. FHA loans allow borrowers to buy a home with as little as 3.5% down. Conventional financing typically requires a larger down payment than this to secure a home purchase. FHA also allows for this down payment to be paid by a family member in the form of a gift. For more information on alternative ways to meet the 3.5% down payment, call (512) 956-7342 or send an inquiry to info@texasfha.com. Conventional financing typically requires that the buyer have at least 5% of their own funds if the down payment is less than 20%. FHA loans also allow for a percentage of the settlement charges to be paid by the seller. This percentage is typically larger than what is allowed for conventional financing. This helps to reduce the amount of cash due at closing from the buyer because more of the settlement expenses can be paid for by the seller.


3. There is no reserve requirement when purchasing a home with FHA. Coming up with the funds to close on a home can be one of the most frustrating part of purchasing a home. FHA does not require that the buyer have additional funds beyond the down payment and settlement expenses (closing costs and pre-paid items to fill an escrow account). Conventional financing typically requires that the buyer have at least enough in the bank post-closing to cover two months of principal, interest, taxes, and insurance. Not having to worry about these additional funds can be a huge relief when budgeting for a home purchase.


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