FHA loans and conventional mortgages

 

The primary difference between conventional loans and FHA loans is that conventional loans are not government-insured. FHA loans are insured  with government funds that provide extra protection for lenders. This makes FHA loans easier to qualify for since the risk to lenders is lower. Conventional loans may require a similar lender protection, but this coverage is purchased as private mortgage insurance.

Borrowers should know that FHA mortgage loans are designed specifically for owners who will occupy the home. You are prohibited from using FHA loan to finance a home if you don’t intend to live in that the residence. These loans are not intended for investment properties, or commercial properties where the residential nature of the home takes a back seat to the non-residential uses of the property. Conventional loans may provide more flexibility in this area.

FHA loan rules do permit the financing of a multi-unit property (as many as four units) as long as the borrower has the intention of living in one or more of the units. Renting the others would be permitted in this instance as long as the occupancy rules are satisfied.

FHA mortgage loans have standard protections built-in that are consumer-friendly, some of which are not always found in conventional loans. FHA mortgage loan rules do not allow penalties for overpaying your monthly mortgage amount or paying in full before the full term of the loan expires.