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.)
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.