Updated 2016 Guidelines On Conventional Loans Versus FHA Loans

What Are The 2016 Guidelines On Conventional Loans Versus FHA Loans

2016 Guidelines On Conventional Loans Versus FHA Loans are different. There are times where a home buyer may need to go with a Conventional Loan versus a FHA Loan. One of the biggest reasons why a home buyer needs to go with a Conventional Loan versus a FHA Loan is when they need a higher mortgage loan limit than the standard FHA Loan Limit at $271,050. Unless the property that you are purchasing is located in a high cost area that is classified as a high cost area by FHA, the maximum FHA Loan Limit in most areas in the United States is capped at $271,050. Chicago and its surrounding suburbs of Will County, Lake County, Cook County, McHenry County, Kane County, and DuPage County have higher FHA Loan Limits and are capped at $365,700. Many areas of California are classified as high cost areas and have FHA Loan Limits of $625,500. California has one of the highest home prices in the nation. Average mortgage loans in the United States is $200,000, however, in California, average residential mortgage loans average $400,000. Miami-Dade County, Palm Beach County, and Broward County are counties of Florida where the FHA Loan Limits are much higher than the rest of the state of Florida. HUD, the United States Department of Housing and Urban Development, is the parent of the Federal Housing Administration or FHA and sets the FHA Loan Limits. FHA Loan Limits can change without extended notice by FHA and often does. FHA can either increase or decrease the FHA Loan Limits in all areas of the United States. For home buyers who need a higher mortgage loan limit than the FHA Loan Limits, then they may have to opt to go with a Conventional Loan. Fannie Mae and Freddie Mac are the two mortgage giants that set the Conventional Loan Limits throughout the United States. Unless the county is classified as a high cost area, Fannie Mae and Freddie Mac maximum conforming loan limits is capped at $417,000. Many home buyers who need a higher loan limit than the standard FHA Loan Limit Cap of $271,050 will need to go with a Conventional Loan versus a FHA insured mortgage home loan.

Updated 2016 Guidelines On Conventional Loans Versus FHA Loans: Requirements

Conventional Loan Programs have tougher mortgage lending requirements than FHA Loans. Fannie Mae and Freddie Mac require a minimum credit score of 620 FICO Credit Score Versus FHA requiring a minimum of a 580 FICO Credit Score to qualify for a FHA insured home mortgage loan. Conventional Loans have a maximum debt to income ratio requirements of 45% DTI whereas FHA will allow up to a 56.9% back end DTI to qualify for a FHA insured home mortgage loan. Down payment requirements for Conventional Loans is normally 5% down payment unless you are a first time home buyer then a 3% down payment ¬†on home purchase will do under Fannie Mae Guidelines. Freddie Mac will allow 3% down payment conventional loan programs if the home buyer has not had any interest in a home ownership in the past three years. FHA only requires a 3.5% down payment on a home purchase as long as the FHA borrower’s credit scores are at least 580 FICO Credit Scores.

Conventional Loans are extremely sensitive to credit scores and loan to value unlike FHA Loans. All FHA Loans are insured by the Federal Housing Administration against borrower default so the FHA approved mortgage lender knows that they are lower risk than conventional loans. In the event if a FHA Borrower defaults on their FHA mortgage loan, FHA will insure the FHA Borrower’s FHA Loan. FHA Loans have much lower interest rates than Conventional Loans and as long as your credit scores are at least 680 FICO credit scores, you will get the best available FHA mortgage interest rates. However, that is not how it works with Conventional Loans. With Conventional Loans, your conventional mortgage rates depends on your credit scores and the amount of down payment you put on your home purchase. To get the best available conventional mortgage interest rates, a conventional mortgage loan borrower needs a credit score of at least a 740 FICO credit score and have at least 25% down payment. With FHA Loans, your mortgage rates will be the same whether you put 3.5% down payment or 25% down payment because your FHA Loan is insured by the government against default.

2016 Guidelines On Conventional Loans Versus FHA Loans: Waiting Period On Mortgage Part Of Bankruptcy

There are mandatory waiting periods after a foreclosure and short sale to qualify for both FHA Loans and Conventional Loans. For FHA Loans, there is a two year mandatory waiting period to qualify for a FHA Loan after a Chapter 7 Bankruptcy discharged date. Those who are into a Chapter 13 Bankruptcy repayment plan, they can qualify for a FHA Loan one year into the Chapter 13 Bankruptcy repayment plan as long as they have the Chapter 13 Bankruptcy Trustee approval and can provide timely payments of all of their creditors for the past 12 months and verification of rent. Those who just had a Chapter 13 Bankruptcy discharge, there is no waiting period after the Chapter 13 Bankruptcy discharge. There is a three year mandatory waiting period to qualify for a FHA Loan after a short sale, foreclosure, or deed in lieu of foreclosure. If you had a mortgage part of Chapter 7 Bankruptcy, the waiting period is three years from the date when the foreclosure was recorded on the county public records after the Chapter 7 Bankruptcy discharged date. So if you had a mortgage part of your Chapter 7 Bankruptcy back in January 2010 and your foreclosure was not recorded until January of 2016, you will not qualify for a FHA Loan until three years from the January 2016 waiting period start date which is January 2019 even though your Chapter 7 Bankruptcy discharged date was January 2010 and your mortgage was part of your Chapter 7 Bankruptcy discharge.

For conventional loans, there is a four year waiting period to qualify for a conventional loan after a Chapter 7 Bankruptcy discharged date. There is a two year waiting period to qualify for a Conventional Loan after the Chapter 7 Bankruptcy discharged date. There is a four year waiting period to qualify for a conventional loan after a short sale and/or deed in lieu of foreclosure. There is a seven year waiting period to qualify for a conventional loan after a foreclosure.

If you had a mortgage part of your Chapter 7 Bankruptcy, there is a four year waiting period to qualify for a conventional loan after the discharge date of your Chapter 7 Bankruptcy discharged date and the foreclosure can be recorded at a later date unlike FHA Loans.

Those who had a mortgage as part of their Chapter 7 Bankruptcy discharge may be eligible to qualify for a conventional loan faster than a FHA Loan because with conventional loans, the waiting period clock starts on the discharged date of the Chapter 7 Bankruptcy for those who had a mortgage as part of their Chapter 7 Bankruptcy.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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