There is a higher down payment when you use a conventional mortgage. The FHA requires a minimum 3.5%. The conventional mortgage usually requires 10% but our banker told us we could put down 5%. This means more money up front for your loan but it also means you will end up paying less interest. It also means that your mortgage insurance premiums go down, which could mean a lower monthly payment.
I think he also told us that with a conventional mortgage the interest rates also go down. I think this might be because you have to pay a higher down payment and it could mean a lower monthly payment.
With the conventional mortgage the allowed seller contribution percentage decreases. Using the FHA the seller can contribute up to 6% of the total cost of the house. With the conventional mortgage the seller may only contribute 3%. I don't know why this is but it means that there may be less money coming from the sellers to cover closing costs.
The big reason we want to go with FHA instead of the conventional loan is that there is no first time home buyer tax credit. Those that go the FHA loan route will receive an $8,000 tax credit paid to the home buyer a year after the purchase of their first home. This tax credit goes directly to the buyer and does not require them to pay it back.
Also, the 203k option does not exist with a conventional loan. The 203k allows first time home buyers (FHA only) to use at least $5,000 and at most $35,000 towards repairs and updates of the home.
The blogger has dealt with different aspects of a conventional loan. First of all, it is to be noted that a conventional loan is issued by a private lender and this loan is not guaranteed by the federal government. The down payment required for a conventional loan is much higher than the down payment required for an FHA loan. In case of an FHA loan, the minimum down payment required is 3.5% of the purchase price of the house. In case of a conventional loan, the down payment amount may be as high as 10% of the purchase price of the house.
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