Differences Between an FHA & a Non FHA Home Loan

By Shauna Zamarripa

Financing a home will typically come with three different choices. Buyers can opt for an FHA, VA or conventional home loan, depending on personal financial factors and base a decision on the home loan that works best for their financial situation. Knowing the benefits to each type of loan is the first step in making an educated choice.

With FHA the minimum down payment required is 3.5 percent. Conventional loans will require 5 percent minimum down, and VA loans require no down payment.

PMI or MIP is a monthly premium paid to the lender to protect them against losses from a loan default. this will range from 0.5 to 0.55 percent on FHA or conventional home loans. VA home loans do not require monthly PMI or MIP.

The upfront costs that must be paid in relation to an FHA loans, VA loans and conventional loans are almost identical. The only difference would be the amount of mortgage insurance premiums paid, which, as of 2009, are as follows: 1.75 percent for FHA loans, 1.5 percent for conventional loans and a funding fee of 2 percent for VA loans.

Many home buyers believe that FHA loans are only available to first-time home buyers. This is not the case. FHA loans are available to any home buyer looking to put the minimum amount down on a property and who is not eligible for a VA loan.

Due to down payment requirements VA loans are the most desirable loans; however, they are only available to eligible veterans. FHA loans also have low down payment requirements, which can make them a better choice than conventional financing.

FHA loans are not credit score driven. Conventional loans are driven completely by a buyer's credit score. This makes FHA loans the best decision in comparison to conventional financing should a buyer have challenges on their credit.

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