FHA VS CONVENTIONAL
When it comes to buying a home, one of the biggest decisions you'll face is choosing the right loan. Should you go with an FHA loan or a conventional loan? If you’re not sure, don’t worry—this is a common question, especially if your credit score hovers around the 660 mark. That score can create a significant difference in the type of loan that’s best for you. In fact, it could mean a $1,000 difference in your monthly payment!
Let’s break it down a bit. FHA loans are often viewed as the go-to option for first-time homebuyers, but really, anyone can use them. One of the biggest advantages of an FHA loan is the lower interest rate. That can be a game changer if you're looking to keep your monthly payment manageable. However, there’s a catch—FHA loans come with mortgage insurance, also known as PMI (Private Mortgage Insurance). And here’s the thing: that PMI just doesn’t go away. It sticks with your loan for the long haul, unless you refinance out of it.
On the other hand, a conventional loan typically rewards higher credit scores with better interest rates. But if you’re sitting at a 660 credit score, the interest rate on a conventional loan will likely land in the mid-to-high 6% range. And while you might dodge the long-term PMI, the PMI on a conventional loan with lower credit can be pricey—sometimes triple what you’d pay with an FHA loan. So, while you may save on interest, the PMI might still hit your wallet harder.
For example, let’s say you’re looking at a $600,000 home and putting 3% down. With a conventional loan at a 660 FICO, your monthly payment could be around $5,100. However, if you opt for an FHA loan and put 3.5% down, your payment drops to about $4,100—literally a $1,000 difference every month!
Now, you might wonder which option is better. Well, the truth is, it depends. When we work on a pre-approval with our clients, we don’t just look at one option. We run multiple scenarios to see what works best for you. Whether your credit score is 660, 680, or 700, we compare the numbers to ensure you make an informed decision that fits your financial situation.
At Locke Your Loan, we believe it’s not just about the loan—it’s about finding the right fit for you. That’s why during our pre-approval meetings, we go over both FHA and conventional loan options side by side. We break down the pros and cons so you know exactly what you’re getting into.
In the end, the decision between an FHA and conventional loan isn’t just about the numbers; it’s about what works for you and your financial goals. Let’s sit down, go over your options, and find the best path to homeownership together. Ready to make the move? Reach out to us, and let’s get started on your pre-approval today!