FHA vs. CONV Loans

FHA VS. CONVENTIONAL LOANS FOR CHICAGOLAND BUYERS FHA and conventional loans are two of the most common mortgage options.

Neither is automatically better. The right choice depends on your credit, down payment, monthly debts, savings, property type, and long-term plans.

WHAT IS AN FHA LOAN?

WHAT IS A CONVENTIONAL LOAN?

The Federal Housing Administration insures an FHA loan.

A government agency does not insure a conventional loan. Many conventional loans follow Fannie Mae or Freddie Mac guidelines.

FHA financing provides more flexibility with credit, debt-to-income ratio, and down payment.

Qualified buyers can purchase with as little as 3.5% down.

Conventional financing often works well for buyers with stronger credit. It can become more expensive or restrictive when the borrower has a lower credit score, higher monthly debts, or limited reserves.

FHA is not limited to first-time buyers.

The best loan is not automatically the one with the lowest advertised rate. Compare the complete payment, mortgage insurance, closing costs, cash needed, and long-term structure.

MORTGAGE INSURANCE WORKS DIFFERENTLY. FHA loans include upfront and monthly mortgage insurance.

Conventional loans generally require private mortgage insurance when the buyer puts down less than 20%, unless the loan is structured differently. The cost depends heavily on credit, down payment, and loan structure.

Conventional mortgage insurance can eventually be removed when the loan meets the applicable requirements.

FHA mortgage insurance follows different rules and can remain for the full loan term when the original down payment is below 10%.

THE PROPERTY HELPS DETERMINE THE RIGHT LOAN. Chicagoland has property types that require a closer review: High-rise condos Small self-managed condo associations Chicago two-flats and three-flats Homes with high Cook County property taxes

Mixed-use buildings Homes with unpermitted additions Properties needing repairs

The information provided here is for informational purposes. When interest rates and loan program information are included, it is for illustration purposes only and not a solicitation or quote for services. This is not an advertisement or loan estimate. Current interest rates, loan programs and qualification criteria can change at any time. If you have questions or need assistance, we can be reached using the contact information above.

FHA vs. Conventional Loans for Chicagoland Buyers

THE PROPERTY HELPS DETERMINE THE RIGHT LOAN. For example, FHA can provide the stronger borrower approval, but the condo building must also qualify.

If the building is not fully FHA-approved, the lender can review whether the individual unit qualifies for an FHA Single-Unit Approval, commonly called a spot approval.

A buyer purchasing a two-flat can use qualifying rental income from the second unit when the borrower, lease, or market-rent documentation, appraisal, and property meet the loan guidelines.

TAXES AND HOA DUES MATTER.

SELLER CREDITS

A buyer can qualify for a different purchase price in Chicago, Oak Park, Naperville, or another suburb because property taxes and HOA dues vary widely.

A condo with $800 in monthly HOA dues reduces borrowing power more than one with $300 in dues.

A seller can provide a credit toward allowable closing costs, prepaid taxes, homeowners insurance, mortgage insurance, or the cost of reducing the interest rate.

In some transactions, a seller credit gives the buyer more value than the same dollar amount as a price reduction.

A home with a $12,000 annual tax bill produces a larger monthly payment than a similarly priced home with $7,000 in taxes.

For example, a $10,000 price reduction usually results in only a modest change in the monthly payment. A $10,000 closing-cost credit can substantially reduce the buyer’s cash needed at closing or help lower the interest rate.

A real loan comparison uses the actual property taxes and HOA dues for the specific home.

The maximum allowable credit depends on the loan program, down payment, occupancy, and transaction.

BOTTOM LINE The better loan is the one that fits the complete situation.

Compare: Monthly payment

HOA dues

Cash needed at closing

Property type

Mortgage insurance

Expected time in the home

Credit profile

Future refinance options

Property taxes The goal is not to declare FHA or conventional the winner. The goal is to choose the loan that works best for you and the specific Chicagoland property you are buying.

JIM BOSTON

Loan Officer | NMLS 443246

C: (847) 571-3150 | jboston@uhm.com 1018 W Madison | Suite #6 | Chicago, IL 60607

The information provided here is for informational purposes. When interest rates and loan program information are included, it is for illustration purposes only and not a solicitation or quote for services. This is not an advertisement or loan estimate. Current interest rates, loan programs and qualification criteria can change at any time. If you have questions or need assistance, we can be reached using the contact information above. 3.5% down payment example for a 30-year fixed-rate FHA loan: Total sales price $300,000, down payment $10,500, loan amount $289,500, interest rate 6.5%, Annual Percentage Rate (APR) 6.667%, final principal and interest payment $1,829.84. Taxes, insurance, and mortgage insurance will be part of the total mortgage payment but are not included in this example. This example is for illustrative purposes only and may differ from the current interest rate offered. Call for the current rate and full disclosure of current terms. 10% down payment example for a 30-year fixed-rate Conventional loan: Total sales price $300,000, down payment $30,000, loan amount $270,000, interest rate 6.5%, Annual Percentage Rate (APR) 6.675%, final principal and interest payment $1,706.58. Taxes, insurance, and mortgage insurance will be part of the total mortgage payment but are not included in this example. This example is for illustrative purposes only and may differ from the current interest rate offered. Call for the current rate and full disclosure of current terms. 20% down payment example for a 30-year fixed-rate Conventional loan: Total sales price $300,000, down payment $60,000, loan amount $240,000, interest rate 6.5%, Annual Percentage Rate (APR) 6.691%, final principal and interest payment $1,516.96. Taxes, insurance, and mortgage insurance will be part of the total mortgage payment but are not included in this example. This example is for illustrative purposes only and may differ from the current interest rate offered. Call for the current rate and full disclosure of current terms. Union Home Mortgage Corp. does not provide tax, legal, credit repair, or accounting services. The information provided is generally true but may not apply to you or your situation. For tax or legal advice please consult an appropriate professional in one of these fields.