When is a 5% Down Loan Better Than a 3.5% FHA Loan?

FHA Loans are a popular topic with first-time homebuyers. Out of the potentially daunting-sounding information you’ve gathered about mortgages, you know that there is a government-sponsored 3.5% down payment program. And yes, that’s true! 

But did you know that you can put 5% down on a conventional loan? It’s not an affordability program with restrictions or additional rules. 5% is simply a down payment option for your typical, conventional loan. And there are times when putting more down to secure a conventional loan is better. If you’re starting your research on mortgages, keep reading.  

The Down Payment Difference

First, let’s take a closer look at the benefit of the 3.5% vs. 5% down payment. Say you’re a first-time buyer looking to purchase a $200,000 condo. The difference between a conventional versus FHA  down payment is $3,000. If you came prepared with a cushion in your bank account, you may rather invest $3,000 into the down payment in order to avoid FHA Loans’ disadvantages. What are the disadvantages, you ask?

FHA Loan Pros & Cons

Every loan situation is unique, and there are plenty of scenarios when an FHA Loan would be the right call. Such as… 

• You have less than perfect credit 
• You’ve had a bankruptcy or other major credit blemish 
• In cases of gift money, all or a portion of your down payment is coming from an organization rather than a family member or friend.   

But here are some of the reasons FHA Loans sometimes are not…  

• Loan amount limits
• Condo and townhome inventory limits
• Non-cancelable mortgage insurance 
• An additional upfront fee  

Conversation is Key

Before you dig too far down into the conventional versus FHA debate, talk to a mortgage banker. The advice is free, and it’s personalized to you! Fill out the contact form below to get one step closer to researching what works best for you.