So when I first got into the real estate business back in 2005, I didn’t know how much it matters for my clients to be educated about the different types of mortgages and their rates. I allowed my mortgage guy to worry about all that stuff.
However in 2008, when the whole world turned upside down because of the damages that predatory lending had done, I realized that I need to be on top of it for the sake of our clients. Back then, anything goes. It seemed pretty nice but…
Anyway, I have now made it a point to keep updating you, our readers, all and everything. All we have left for most cases now is:
- FHA loans and
- Conventional loans.
At least, these are the most popular programs. Quite a few people have asked me what the difference is between them. I’ve gotten the information for you and here is it below.
Similarities between Conventional & FHA loans
• Both currently offer some of the lowest rates in history.
• 15-year conventional fixed-rate mortgage rates are at an all-time record low.
• The most popular FHA & conventional loans are fixed-rate mortgages, both also offer ARMs
Advantages of an FHA Loan
• Credit scores as low as 580 to qualify.
• Allowable debt-to-income ratio is higher for an FHA loan.
• Low down payment – FHA loans generally require as little as 3.5% down.
• 100% gift from a family member for down payment and closing costs allowed.
• Seller concession of up to 6% of loan amount allowed. (This is good to help with closing cost.)
• FHA loans feature less funds needed to close – leaving more money in your clients pocket at closing.
• Easy Refinancing – Refinance up to 97.75% of your home’s value.
• FHA also offers an FHA Streamline which allows you refinance with no appraisal and minimal credit requirements.
FHA loan is generally ideal for first time home buyers and/or someone replacing a primary residence.
Advantages of a Conventional Loan
• Slightly lower interest rates than FHA (Essentially because the borrower is low risk for the lender)
• Loan amounts of over $625,000 for single family dwelling allowed.
• Options available on Mortgage Insurance (MI) payments, including piggy-back financing.
• 5% down on Fannie Mae eligible condos allowed.
• Borrowers with excellent credit can get lower rates with conventional loans.
• No Mortgage Insurance (MI) at closing – FHA loans come with mortgage insurance premiums (MIP) that are built in over the life of the loan.
• FHA requires a one-time upfront mortgage insurance premium due – currently 1.75% of the total loan amount.
• Different repayment terms offer different, more competitive mortgage rates. The shorter your term, the lower the rate.
• 10, 15, 20, 25 or 30-year terms. FHA loans generally do not offer as many options. (Most people still go for the 30 years.)
Overview:
If you have some credit issues and do not have the funds for the standard 5-20% down payment on a conventional loan, an FHA loan may be the better option.
If you have good credit, a stable job and a sizable down payment – you could save more money over the life of the loan by choosing a conventional product.
Our recommended mortgage officers at helping your client get the loan program that is right for them. I encourage you to act quickly as these low mortgage rates will not last forever.
It will cost you $0 (ZERO) to get prequalified. Feel free to call us anytime to get it done. Phone number at the top of this page.