Denver Mortgage Rates – FHA vs. Conventional Loans Rates
It’s a common debate and the answer is that it depends.
In general, yes conventional rates are a little higher than FHA rates because of the risk involved in conventional loans.
Conventional lenders don’t have a government guarantee like they do if you take out an FHA (government) loan. If you default on a conventional loan, the lender could lose a lot of money. If you defaulted on an FHA loan, the FHA would help the lender financially.
Does that mean conventional loans always have higher rates? It depends on many factors.
What’s your Credit Score?
The first thing lenders look at when you apply for a mortgage is your credit score and for good reason. Your credit score tells lenders if you are a good, aka responsible, borrower. If you have a low credit score you likely default on debts or overextend your credit.
If you have good credit, you are responsible and have a lower risk of default. This helps determine the interest rate a lender charges.
Conventional loan interest rates start higher than FHA loans, but FHA loans allow lower credit scores. If you have a 580 credit score (the minimum they allow), the lender will likely bump up your interest rate to higher than a conventional rate to make up for the risk.
How Much are you Putting Down?
Lenders also care about how much they borrow compared to the home’s value. If you borrow 97.5%, for example, you are at a higher risk than someone who borrowed 90% of the home’s value.
Just because loan programs have minimum down payment requirements doesn’t mean you can’t invest more money into them. When you have more ‘skin in the game,’ you’re less likely to default which means lenders may give you a lower rate, whether it’s an FHA or conventional loan.
How do your Other Qualifying Factors Stack Up?
While lenders focus on your credit score and down payment, they look at other factors too. The better these factors are, the more likely you are to secure lower rates on either FHA or conventional loans.
- Debt-to-income ratio – Your DTI tells lenders how much of your income is committed to debts already. The higher your DTI, the riskier your loan is.
- Employment and income stability – The less stable your income or employment are, the riskier the borrower you are in the lender’s eyes.
- Loan amount – The more money you borrow, the riskier your loan is no matter your qualifying factors.
If you’re looking to get the best Denver CO mortgage rates, work on your qualifying factors. Don’t focus on whether you need an FHA or conventional loan – I can help you sort that out. The bottom line is that you should have good qualifying factors no matter which loan you need so you can get the best rates.
This was our brief take on, FHA Vs Conventional Loans Rates for any queries get in touch with us!