What is the difference between FHA and Conventional Loans?

There are multiple differences between an FHA loan and a Conventional Loan.

An FHA loan means that the loan is insured by the Federal Housing Administration.

With a Conventional Loan, the mortgage company assumes the risks of issuing the loan. It is not insured by a federal agency.

FHA loans may have more flexible terms for homebuyers. FHA loans often allow for lower credit scores than Conventional loans. FHA loans allow for low down payments, while only a few Conventional loan programs have low down payment options.

FHA loans and Conventional loans have different mortgage rates.

FHA loans require mortgage insurance, while Conventional loans may or may not require it, depending on the down payment amount and terms of a particular loan program.

FHA loan and Conventional loan limits are also different. In 2023, the FHA loan limit is $472,030 in low-cost locations and $1,089,300 in high-cost locations. Certain counties  have limits falling between these two numbers. In the Baltimore metro area, the different counties around Baltimore have different loan limits based on that county’s general housing market pricing. For Conventional loans, in 2023, the limit is $726,200, while loan amounts above that would be considered “Jumbo” loans with different standards than regular Conventional loans.

Appraisals for FHA loans and Conventional loans are also different. For an FHA loan, the value of the property is assessed, but the safety of the home is also addressed. If the appraiser finds anything about the home to be what they consider to be unsafe, they may require that situation/item to be repaired for the home to “pass” the appraisal.

Conventional loans are more focused on the property value. There is a possibility that with a Conventional loan that an appraiser may find something unsafe that they would require to be repaired in order to assign a value to the property.

This, of course, does not cover every difference or every detail about FHA vs Conventional loans, but hopefully this helps to explain some of the major differences between the loan types.

If you have questions about buying a home in Towson and what loan type may be the best for your situation, please contact me. I have some lenders that I work with regularly who can help guide you, along with me, to getting a mortgage to buy a home!