Should You Take Out an FHA Loan or Conventional Loan for Your Granbury Home Purchase?

If you have been considering the purchase of a home in Granbury you may be wondering what mortgage interest rate you will be offered. You may also be wondering if it is better to take out a loan that requires a lesser down payment as the cost of purchasing a home has become more expensive over the last few years. Many Granbury homebuyers wonder if a conventional loan or an FHA loan would be better to utilize for their Granbury home purchase.

First, let's take a look at the basics of each type of loan

A description of an FHA loan

An FHA loan is a mortgage purchase loan that is backed by the federal housing administration also known as the FHA. This means that the FHA will protect lenders it approves for these loans against loss if the mortgage borrower/homebuyer stops paying their mortgage payments. These loans are often geared toward homebuyers that may have difficulty obtaining the most traditional of loans which is a conventional loan. Often an FHA loan will come with a lower credit score requirement, a lower down payment requirement, and other flexible qualification criteria.

Conventional loans defined

A conventional loan is the most traditional style of mortgage loan available to homebuyers in Granbury and across the country. These loans are not backed by the government directly but are offered by a majority of mortgage lenders in the United States. You can find conventional mortgage loan products at banks, credit unions, and even online lenders. The most common conventional loan is the 30-year fixed-rate mortgage though loan terms can come in other time increments including 15 years or even 40 years. These loans can also offer adjustable interest rate terms.

A conventional loan can be either conforming or non-conforming. A conforming conventional loan is more common than a non-conforming. Conforming loans are those that meet mortgage parameters set by the mortgage entities of Fannie Mae and Freddie Mac. This means that the lender is able to sell off the mortgage to these entities and as such many lenders will offer these mortgages more than any other type of mortgage.

The difference between FHA and conventional loans

Perhaps the largest difference between the types of loans is their requirements for credit score and down payment. An FHA loan will often approve a borrower for a mortgage loan with a credit score of a minimum of 580. Some FHA loans may allow a credit score of 500 with a larger down payment requirement. A conventional loan will require a credit score of at least 620.

FHA loans look for a 50% debt-to-income ratio maximum and conventional loans most often would like to see a 43% that to income ratio.

Down payment requirements for FHA loans usually hover around 3.5% but there can be different down payment requirements depending on specific terms and requests from the barber. A conventional loan can offer anywhere from a 3% to 20% down payment depending upon the loan program. Most often lower interest rates come from non-conforming loans loaning out larger amounts of money but have stricter qualifying requirements when it comes to having a certain amount of mortgage payments present in your savings account.

Interest rates are also very different depending on each specific type of loan. For the most up-to-date interest rates on each type of loan, it is best to look at current mortgage rate calculators or the latest mortgage rate news. This of course is not a guarantee of what mortgage interest rate you will be offered but it is a very loose ballpark figure. The exact mortgage rate a lender will offer is dependent upon the borrower's specific financial qualifying status.

Which loan is better?

The answer to this question is not black and white. Each type of loan comes with its own perks and drawbacks. The best way to determine what mortgage loan is best for you is to talk it over with a financial advisor and a mortgage broker. You can even glean some helpful insight from your trusted real estate agent. They can give you their advice as well as help to point you in the direction of more detailed and knowledgeable advice through a financial professional.

The best mortgage loan for you is the one that will offer you the best mortgage rate and the best ability to pay down your mortgage at a reasonable time scale. You may find that the mortgage program offering you the lowest interest rate might actually not be your best personal mortgage product for your Granbury home purchase.

For more information on buying a home in Granbury please contact us. We truly want to serve you and help you to find a Granbury home that you love and can comfortably afford. We believe there is no better place to live than Granbury and we make it our duty to find our client a great home in our favorite town.