Benefits Of FHA Loan Versus Conventional Loan

Gustan Cho Associates

Benefits Of FHA Loan Versus Conventional Loan

Benefits Of FHA Loan Versus Conventional Loan Programs:

Two of the most popular mortgage loans are FHA Loans and Conventional Loans.  VA Loans and USDA Loans are excellent mortgage loan products but not everyone can qualify for VA Loans and USDA Loans.  VA Loans require mortgage loan applicants who are veterans of the United States military with a valid Certificate of Eligibility in order to qualify with the 100% financing VA Loan program.  USDA requires that the subject property be in a USDA approved area and the borrower has certain maximum income requirements they need to meet.  FHA Loans are for everyone who qualify and so are conventional loans.  Both FHA Loan and Conventional Loan programs have their own unique lending guidelines.  We will compare FHA Loan versus Conventional Loan programs on this blog.

Credit Score Benefits Of FHA Loan Versus Conventional Loan

Minimum credit scores required for a 3.5% down payment FHA Loan is 580 FICO.  Minimum credit scores required for a 3% down payment conventional loan is 620 FICO credit scores.

Minimum Credit Score Benefits Of FHA Loan Versus Conventional Loan

Minimum down payment requirements for a FHA Loan is 3.5% down payment on a home purchase if the mortgage loan borrower has a minimum of 580 FICO credit score.  If the mortgage loan borrower has a credit score of under 580 FICO, then the minimum down payment is 10% down payment on a home purchase mortgage loan.  There is a minimum down payment of 3% down payment for first time home buyers or home buyers who did not own a property in the past three years to qualify for a conventional mortgage loan.  For seasoned and veteran home buyers, the minimum down payment on a conventional loan is 5% down payment on a home purchase.

Mortgage Insurance Benefits Of FHA Loan Versus Conventional Loan

FHA requires a one time upfront mortgage insurance premium and a lifetime annual mortgage insurance premium of 0.85% for the life of a 30 year fixed rate FHA mortgage loan no matter what the loan to value is.  Conventional Loans, there is no private mortgage insurance required if the homeowner has at least a 20% down payment or 80% loan to value.  Any conventional loans with a loan to value of 80% or greater, private mortgage insurance is required but the private mortgage insurance is substantially less than the FHA mortgage insurance premium.  Conventional mortgage lenders will allow you to cancel the private mortgage insurance once your loan to value reaches the 80% loan to value mark.

Waiting Period After Bankruptcy And Foreclosure Benefits Of FHA Loan Versus Conventional Loan

FHA waiting period after bankrutpcy is two year waiting period after the discharge date of the bankruptcy.  FHA Loan waiting period to qualify for a FHA Loan after a foreclosure or deed in lieu of foreclosure is three years from the recorded date of the deed which is reflected on the recorder of deeds office.  There is a mandatory 3 year waiting period from the date of a short sale in order to qualify for a FHA loan.  FHA has the FHA Back to Work Extenuating Circumstances due to an Economic Event which shortens the waiting period to a one year waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale.

With conventional loans, there is a four year waiting period after the discharge date of a bankruptcy to qualify for a conventional loan.  There is a four year waiting period after a deed in lieu of foreclosure or short sale to qualify for a conventional loan.  There is a seven year waiting period after foreclosure to qualify for a conventional loan.

FHA Loan versus Conventional Loan: Mortgage part of Bankruptcy

If you had a mortgage part of your bankruptcy, the waiting periods are very different with FHA Loan versus Conventional Loan.  If your mortgage was part of your bankruptcy, the waiting period to qualify for a FHA Loan starts from the recorded date of your foreclosure after the bankruptcy discharge date even though your mortgage loan balance was discharged in your bankruptcy.  With conventional loans, if your mortgage was part of your bankrutpcy, the waiting period to qualify for a conventional mortgage loan starts from the date of the bankruptcy discharge date.  So if you had a mortgage part of your bankruptcy and the deed of your home did not get recorded two years after the discharge date of your bankruptcy, the waiting period will be four years from the discharge date of your bankruptcy.

FHA Loan versus Conventional Loan: Deferred Student Loans

FHA allows monthly student loan payments that are deferred at least 12 or more months to be exempt from the calculations of your debt to income ratios.  Conventional loans does not allow this exemption and will count your monthly student loan payments in calculating your debt to income ratios even if the student loan is deferred.  If you cannot get an exact monthly payment from your student loan provider, 2% of your outstanding student loan balance will be used as your monthly student loan payment and this figure will be used in calculating your monthly student loan payments.

FHA Loan versus Conventional Loan: Non-Occupant Co-Borrowers

FHA allows a non-occupant co-borrower to be added on your loan to qualify for income.  Fannie Mae does not allow non-occupant co-borrowers, however, Freddie Mac does.  Not all mortgage lenders are Freddie Mac approved.

FHA Loan versus Conventional Loan: Gift Funds for down payment

FHA allows 100% gifted funds to be used for down payment on a home purchase.  With conventional loans, a percentage of the down payment will need to come from the home buyer.  For example, if a conventional loan home buyer is putting down 20% down payment on a home purchase, 5% of the 20% down payment needs to come from the home buyer and the other 15% down payment can be gifted.

FHA Loan versus Conventional Loan: Debt to Income Ratios

Maximum debt to income ratio caps on conventional loans are capped at 45%.  FHA has maximum back end debt to income ratio capped at 56.9%.  For home buyers who have great credit but higher debt to income ratios, FHA may be the route to take on a home purchase loan.

Related> FHA Loan versus Conventional Loan in California

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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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