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A Federal Housing Administration (FHA) loan is a home mortgage that is insured by the government and issued by a bank or other lender that is approved by the agency.
1) FHA loans require a lower minimum down payment than many conventional loans, and applicants may have lower credit scores than is usually required on conventional loans.
2) The FHA loan is designed to help low- to moderate-income families attain homeownership. They are particularly popular with first-time homebuyers.
Key Takeaways
If you have a credit score of at least 580, you can borrow up to 96.5% of the value of a home with an FHA loan, as of 2022. That means the required down payment is only 3.5%.2
Federal Deposit Insurance Corporation. "203(b) Mortgage Insurance Program," Page 21.
If your credit score falls between 500 and 579, you can still get an FHA loan as long as you can make a 10% down payment.
This is a reverse mortgage program that helps seniors ages 62 and older convert the equity in their homes to cash while retaining the home's title. The homeowner can withdraw the funds in a fixed monthly amount, a line of credit, or a combination of both.
A conventional mortgage is a homebuyer’s loan made through a private lender. Compared to a Federal Housing Administration (FHA) loan, a conventional loan often offers a higher interest rate. It can also require a higher credit score to qualify.1
Conventional loans are not offered or secured by a government entity. Instead, these mortgages are available through private lenders, such as banks, credit unions, and mortgage companies.
However, some conventional mortgages can be guaranteed by the two government-sponsored enterprises (GSEs): the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac).
Pros
Cons
Refinancing your mortgage replaces your old mortgage with a new mortgage; one with a different principal amount and interest rate. The lender pays off the old mortgage with the new one and you are then left with just one mortgage; typically one with more favorable terms (lower interest rate) than your previous one.
There are a few reasons why one would refinance their home. The primary reason is to obtain more favorable loan terms than before. This is usually seen in a lower interest rate on your mortgage, which makes your mortgage cheaper, resulting in lower monthly payments. Other reasons to refinance your home include changing the term on the mortgage or taking out a cash value from the home's equity to use for other purposes, such as paying off debts or renovating your home.
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