Home loans can be confusing, and finding the right type of home loan for your particular circumstances can be a frustrating process. “Knowing the difference between the two basic home loan types can help you make a confident decision, and ensure your buying process goes smoothly,” says Connie Ray, President/Owner of Coldwell Banker Platinum Partners.
Conventional Loans
A conventional loan—also known as a conforming loan—is one not insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA), both of which make homeownership affordable and accessible.
“Conventional loans require a higher credit rating, and even for those who do qualify for a conventional loan may be better off with an unconventional one,” explains Ray. “This is because the lower your credit score, the higher your interest rate will be.”
Unconventional Loans (FHA)
An unconventional loan, or non-conforming loan or FHA loan, can be obtained through a bank or private lender. The FHA has helped millions of homeowners purchase property who would have been otherwise unable to do so. These loans are ideal for lower-income borrowers or those with less than perfect credit. However, unconventional loans have insurance requirements, which tend to be relatively inexpensive and can be built into your loan.
“In general, unconventional loans are a great choice for homeowners,” says Ray. “The main drawback is that the loan limit is lower, and if a higher price is needed for a home loan, then the buyer must put down a larger down payment.”
“If you’re on the fence about which loan is right for you, try making a list of the pros and cons,” says Ray. Conventional loans carry more restrictions, and generally unconventional loans are often more attainable. However, the circumstances are different for every homeowner. Take time to think about which loan option is best for you.
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