FHA Loan vs Conventional Loan – which one is better? I was speaking at an FHA seminar for real estate agents in Fremont, CA recently. The topic was “How FHA loans are playing a big part in qualifying more First Time Home Buyers”. At the end of the presentation, I was asked this question – “Are FHA loans really better than conventional”. I had similar questions asked by Buyers and Real Estate agents in other forums in San Jose and rest of the San Francisco Bay Area too.

There is no black & white answer to it – because it all depends on your situation. Below, I have compiled a table to compare the loan features of both the programs. As you would see depending on your specific situation, either one could be better.

** Since I wrote this post FHA Up front Mortgage Insurance Premium (UFMIP) requirements have changed**

LOAN FEATURES

CONVENTIONAL

FHA

Max Loan Amount

$625,500

$729,750

Max LTV

90%-95%

96.5%

UFMIP

0

1.75%

PMI

Up to 1.05%

Up to 1.50%

PMI

Only for LTVs>80%

At all LTVs

Appraisal

Via HVCC

via HVCC

Non occupant co-borrower

Not Allowed

Allowed

Declining Market Policy

No

No

Higher Rates for Condos

Yes, >75% LTV

Same as SFR

Min credit score at max LTV

680/700/720 (Based on the loan amount)

620/640 (Based on the lender)

Occupancy

All Types

Only Primary Residence

All funds can be gifted

No

Yes

Impounds

Optional <90% LTV

Always mandatory

Manufactured Housing

Limited Options

Allowed

Pre-Payment Penalty

No

No