What is a conventional loan?
Conventional Loan vs. FHA Loan: What Walnut Creek Homebuyers Need to Know
If you’re diving into the real estate market in Walnut Creek, California, or anywhere in the East Bay, you’ve likely heard the terms “conventional loan” and “FHA loan.” But what do they really mean? And more importantly, which one is right for you?
At Ask Brendan, we’re here to clear up the confusion so you can feel confident about your home financing options.
What Is a Conventional Loan?
A conventional loan is a type of mortgage that is not insured or guaranteed by the federal government. Unlike an FHA loan, which is backed by the U.S. government, conventional loans come directly from private lenders. This means if you default on your loan, the lender takes the risk — not the government.
How Does a Conventional Loan Differ from an FHA Loan?
Understanding the difference between conventional and FHA loans is crucial when navigating the Walnut Creek and East Bay real estate market.
Credit Score Requirements: Conventional loans usually require a credit score of 680 or higher, while FHA loans tend to be more flexible, allowing lower scores.
Down Payment: FHA loans allow buyers to put down as little as 3.5%, making them attractive to first-time homebuyers. Conventional loans may require a larger down payment, but there are some options with as little as 3-5%, depending on the lender and loan program.
Loan Structure: FHA loans are typically one loan. Conventional loans can be more complex if you’re trying to combine multiple loans (like 80-20 or 90-10 financing).
Private Mortgage Insurance (PMI): With a conventional loan, if you put down less than 20%, you’ll pay PMI — a monthly insurance payment that protects the lender. Over time, as you pay down your mortgage, PMI payments can end. FHA loans also require mortgage insurance premiums, but the structure differs.
Debt-to-Income Ratio Differences
Another important factor in choosing a loan is your debt-to-income (DTI) ratio — how much debt you have compared to your income.
Conventional loans typically allow for a slightly higher DTI ratio, giving you more flexibility.
FHA loans generally cap the DTI at around 45-50%.
What Does This Mean for Walnut Creek Homebuyers?
When buying a home in Walnut Creek or anywhere in the East Bay real estate market, understanding loan options helps you make smarter decisions and plan your finances better. Whether you qualify for a conventional loan or an FHA loan depends on your credit, income, and down payment ability.
Don’t Let Mortgage Jargon Hold You Back
The home-buying process can feel overwhelming with acronyms and terms thrown at you from every direction. At Ask Brendan, we believe it’s okay to ask questions—no one expects you to be an expert on conventional loans vs. FHA loans right away.
If you’re ready to start your journey into Walnut Creek real estate or want help deciding which loan is best for your California home purchase, reach out to us anytime. We’re here to help you every step of the way.
