Tuesday, 15 October 2019

Which Is a Better Loan FHA or Conventional?


Today we are going to be breaking down comparing FHA vers Conventional loans. And I am going to tell you it really depends, you have to look at both FHA and conventional loans to see which loan program is going to better for you. So, today that is what we are going to be focusing on. Explaining the guidelines and qualifications and benefits of both FHA and conventional, so you can determine which loan program is better for you.


Let's Start With FHA

Have Almost Taken Up 30% Of The Mortgage Market

FHA loans have grown massively in the last decade, they have almost taken up 30% of the mortgage market share in the United States, that means that of all the 30% of the mortgages that are done right now in the United States are FHA loans.


Government-Backed Mortgage

FHA loans stand for the federal housing administrations, it's a government-backed mortgage, guaranteed by the department of FHA, and the purpose of it is to ensure the lender, whenever the lender makes the loan, and the event of a default or a foreclosure, the FHA will actually pay off the mortgage company if the borrower goes into foreclosure. FHA loan is a great loan program for first-time buyers, second buyers, people that don't have very strong credit, or even people who have fair or even decent credit.


Available Nationwide

it's available nationwide in all 50 states and all the sister countries as well, that partner with America. You can buy a brand-new home, you can build a house with the FHA, you can refinance and take out cash with the FHA. You can own a property.


1.75% Of The Purchase Price

Because it's a government-guaranteed loan, there is a fee that you have to pay to the government's, 1.75% of the purchase price, or the loan amount that you financed. Whatever the loan amount you end up financing, that funding fee gets financed into your loans as well. If you have a $100,000 home, you'd actually finance $1,750, because you have to finance in the mortgage insurance for the FHA. It also has monthly mortgage insurance of 0.85%. Whatever you end up financing on the size of your loan, you pay mortgage insurance monthly for the life of the loan 0.85%. The only way you can actually get rid of the mortgage insurance is actually if you refinance the mortgage into a conventional, another type of product. If you are with an FHA loan the mortgage insurance stays in there for the life of the loan if you do a 15-years term, the mortgage insurance is actually cheaper, but with a 30-year term, it's 0.85%.


 Loan limit - $300,000 to $700,000

There are loan limits anywhere from $300,000 to $700,000 depending on what part of the country that you live in, whether it's New York, California, Orlando, or Houston, it's going to be anywhere from $300,000 to $700,000


DownPayment 3.5%

With an FHA loan, you only need 3.5% down, you don't need 20% down like a lot of banks loan. 


No Credit Score Requirement

With the FHA they have no credit score requirement, you can actually go down to a 500 credit score with the FHA program, and that is one of the biggest difference between FHA and conventional, whereas conventional they typically want to see a 620 or higher credit score, with FHA you can actually go down to a 500 credit. They are very lenient with if you had issues with your credit and you had extenuating circumstances whether it's medical, job loss, or illness because it's government-backed and guaranteed, they work with you on your credit even if you don't have the best of credit.


Conventional


620 or Higher Credit Score

Conventional is a little bit different like I said you usually have to have a 620 or higher credit score, 


Can Go From $420,000 to $1 million

With conventional, you can go from $420,000 up to a million-dollar depending on where you at in the country.


You Can Get Rid Of Mortgage Insurance

The biggest difference with conventional is that the mortgage insurance comes off on the mortgage when you hit 20% equity. You don't have to keep paying monthly mortgage insurance. Usually, when you hit that 20% equity mark you have been paying on the payment for at least a year to a few years, you can request to have the mortgage insurance removed. Therefore your payment would be recalibrated and you'd have a lower monthly mortgage payment once that mortgage insurance comes off the payment. 


You Do Not Have To Escrow Your Taxes And Insurance

Also, with FHA loan you have to escrow your taxes and insurance, it's mandatory, with conventional loans if you put 20% down you do not have to escrow your taxes and insurance. With conventional you can do 3% down, 5% down, 10% down and 20% down.

When you put 20% down you don't have to escort your property taxes, insurance. 


You Must Be Out Of Bankruptcy For 4 Years

With FHA loan you can buy a home after bankruptcy after 2 years. But with the conventional loan, you have to be out of bankruptcy for 4 years.


Have To Wait 7 Years After Foreclosure

If you had a foreclosure you can buy a home with FHA after 3 years from foreclosure, you have to wait 7 years with a conventional loan if you have a foreclosure.




Conclusion

Those are the biggest difference between FHA and Conventional, they both have their place in the market. 

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