Although FHA (government-insured) loans are more expensive than Conventional, there are many reasons why homeowners and homebuyers go this route of financing.  The most common is for its minimal down payment requirement, but there are other reasons. See below for a highlight of the features and advantages of an FHA loan:

  • As little as 3.5% down payment allowed (versus Conventional, where 5% is the minimum down payment for a conforming loan, 10% for a high-balance loan, and 20% for a Jumbo)
  • 100% gift funds allowed (on Conventional, 5% of down payment must come from your own funds)
  • Credit scores as low as 640 okay
  • No minimum reserve requirement on 1-unit homes
  • Cash-out up to 85% Loan-to-Value ratio okay (on 1-unit homes)
  • Non-occupant co-borrower (a co-signer) is okay for qualifying purposes
  • Up to 6% seller concessions on purchases
  • Foreclosure 3 years ago is acceptable (for Conventional, 7 years must pass)

If you qualify for a Conventional loan and meet all its requirements, it is absolutely more advantageous than FHA; however, FHA-financing will often help people get in the door for buying a home and is an excellent option to pursue.