This or That?
In the past, there was a clearer difference between an FHA and a Conventional loan. For instance, FHA loans used to require significantly more paperwork than Conventional loans, but nowadays there is very little difference. FHA loans used to be geared only towards first time homebuyers, and that is no longer the case. As access to credit has decreased, the lines between the two have blurred. We see many buyers purchasing homes in Charlotte, North Carolina and Raleigh, North Carolina that have excellent credit but find the benefits of the FHA outweigh those of a Conventional.
Should a seller consider an offer from a borrower obtaining a Conventional loan over an FHA Loan? The short answer is, no. FHA loans get approved at the same rate as Conventional loans. In fact, you could make the case that they offer more flexibility. For example, if a debt shows up on a borrower’s credit after you pull it, FHA’s ability to go to 55% might save the deal.
There are two situations when a seller should choose a Conventional offer over an FHA offer. First, if the property has safety issues or things that need to be fixed, a Conventional appraisal will be less likely to point out those issues while an FHA appraiser will require those to be fixed prior to closing. Next, if it is a condo that is not already approved by FHA, you would absolutely want to stick with a Conventional loan.
For all intents and purposes, a borrower with an FHA loan is just as likely to get approved as one getting a conventional loan. If you are selling your home, go with the best offer, and pay more attention to the borrower’s pre-approval letter than the type of loan they are getting.