FHA Loans vs. Conventional Home Loans

The main difference between a FHA Loan and a Conventional Home Loan is that not only does it require a lower down payment, but also the credit qualifying criteria for a borrower is not as strict. This allows those without a credit history, or with minor credit problems to buy a home. FHA requires a reasonable explanation of any derogatory items, but will use common sense credit underwriting. Some borrowers with extenuating circumstances surrounding bankruptcy discharged 2-years ago can work around past credit problems. However, conventional financing relies heavily upon credit scoring, a rating given by a credit bureau such as Experian, Trans-Union or Equifax. If your score is below the minimum standard, you may not qualify.