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You've heard the terms before, and you probably know that FHA mortgages are great for first time home buyers, but did you know that FHA loans are not restricted only to first time home buyers. The only stipulation is that you may only have one FHA loan at a time. An FHA mortgage loan that is guaranteed by the Federal Housing Administration (FHA), who's purpose is to stabilize the mortgage market by insuring mortgages. FHA loans are ideal for minority buyers, first time home buyers, buyers who have troubled credit, and buyers who have little money to put down on a home. Because the FHA is insuring the loans, the buyers pay upfront and monthly premiums, both of which can be absorbed into the loan amount.

Conventional loans are made at the risk of the lender, without the benefit of being FHA insured. Conventional loans with a loan to value ratio of greater than 80% require that the buyer pay mortgage insurance. Typically the requirements of conventional loans are a little more strict, requiring better credit, a sizable down payment, and low debt to income ratios. Because the perceived risk is lessened by these requirements, usually conventional loans have a lower interest rate than that of FHA refinance and mortgages.