Category Archives: Mortgage Rates

Difference & Similarity Between FHA & Convention Home Mortgage Loans

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:

  1. FHA loans and
  2. 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.