whats difference between FHA and conventional

i am often asked by clients about whats different between different loans and which one is better
  • September 27 2013 - Cleveland
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Answers (3)

FHA is more lenient with credit scores than conventional.

Depending on the lender you work with and their programs, conventional has 3%, 5%, 10%, 20% and 25% down options.  With 20% or higher down, there is no mortgage insurance.  With under 20% down, there is mortgage insurance - 0.67% per year (right now in my area) of the loan amount, that is there until your client gets to a 22% equity position in the property.

FHA loans - 3.5% down minimum down payment requirement.  Permanent mortgage insurance for the 30 years of the loan (OUCH!), the rate for this in my area is 1.35% of the loan amount per year. 

Typically, you recommend your clients talk with a lender to explain to them the various scenarios and then your clients decide on what is best for them to do. 
  • September 28 2013
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Since the new federal laws on mortgage origination we try to avoid in depth discussions with potential buyers. 

Quoting an interest rate or giving an opinion on which mortgage might better suit the client could result in repercussions since we do not have a mortgage license.

The best thing we can do is tell them there are multiple loan products and refer them to a trusted mortgage professional to guide them.
  • September 28 2013
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I would say that main differences that are important to a borrower are the down payments required, credit score needed, and the Mortgage Premium Insurance. The down payment of an FHA loan is only 3.5% and the conventional can be anywhere from 5%-20%. Also, there is usually a higher credit score needed for a conventional loan. For example, lenders like myself can give out FHA loans with scores as low as 580 but conventional loan cannot be lower than 620. Lastly, the FHA has a monthly Mortgage Insurance that the conventional does not have. These are all important differences between the two loans.

What is your current credit score? There are lenders like myself that are able to give out loans with score as low as 580. So if you are above that then you may have a better chance at getting a loan. If not, I recommend that you work on your credit. The simplest way to fix your credit is to pay off you debt and revolving credit balance on time. Either way, I recommend that you speak with a lender like myself that would be more than willing to help you get the loan that you need!

Well I hope this helps! If you have any other questions or if you have a client that would like a loan, feel free to contact me.

Good Luck!
  • September 30 2013
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