We hear that FHA loans are a good deal, but do sellers prefer conventional mortgages?
FHA loans can be great deals for families with smaller down payments and for people in very high-cost housing areas.
In fact, in areas where real estate is expensive, borrowers can take FHA mortgages for as much as $636,150, but the limits vary from place to place.
One of the differences between conventional and FHA loans is the required down payment. For buyers with a FICO score of 580 or higher, the down payment is 3.5 percent.
Conventional loans require a higher FICO score of 680 or greater and generally a minimum of 5 percent down, but lenders might ask as much as 10 percent or even 20 percent, depending on the purchase price and buyer's credit score.
Sellers generally consider that FHA buyers might have less cash and therefore less wiggle room on their loans. This can sometimes mean buyers can't close the loan in the end or that they will need more concessions in the deal. That's certainly not always true.
Standards for inspection and appraisal are more stringent with FHA loans. Sometimes these standards get in the way of a quick sale. Something as simple as peeling paint can interfere with getting an appraisal finished, so there can be delays in both the process and in loan approval times.
However, it's a myth that FHA buyers are lower income.
Today the FHA has a variety of loan guarantee programs for first-time borrowers, reverse mortgages, and refinances. The percentage of FHA loans in the mortgage market is about 25 percent.