Conforming Versus FHA Mortgage Guidelines And Benefits

This BLOG On Conforming Versus FHA Mortgage Guidelines And Benefits Was PUBLISHED On January 5th, 2019

There are times where borrowers need to go with Conforming Versus FHA Mortgage Loans. Here are instances where home buyers need to go with Conforming Versus FHA Mortgage:

• Higher loan conventional loan limit of $484,350
• Conventional Loans does not count non-borrowing spouse’s debt in community property states
• FHA Loans does include non-borrowing spouses debts in community property states
• Conventional Loans allows Income Based Repayment
• FHA Loans does not allow IBR Payments
• Mortgage Included In Bankruptcy

In this article, we will cover and discuss Conforming Versus FHA Mortgage Guidelines And Benefits.

Conforming Versus FHA Mortgage Due To Higher Loan Limits

Both HUD and FHFA have increased FHA and Conforming Loan Limits for three years in a row due to rising home prices.

• However, conventional loans have much higher loan limits capped at $484,350
• Homebuyers who need to qualify for higher-priced home in the U.S. often need to go with conforming versus FHA mortgage loans due to conforming higher loan limits
• Down payment requirements on FHA Loans is 3.5%
• Conforming Loans require a 3% down payment for first time home buyers. 5% down payment for seasoned home buyers

Fannie Mae and Freddie Mac define first time home buyers as buyers who have not had ownership in a home in the past three years.

Mortgage Insurance Guidelines On Conforming Versus FHA

HUD, the parent of FHA, requires a one time upfront FHA MIP on all FHA Loans.

• FHA requires a lifetime annual FHA Mortgage Insurance Premium of 0.085% for the life of a 30 year fixed rate mortgage
• Any conforming loans with less than 20% down payment, private mortgage insurance is required
• There are various private mortgage insurance programs on conventional loans
• Lender Paid Mortgage Insurance is available
• PMI can be canceled on conforming loans once the loan to value is greater than 80% LTV

Conforming Versus FHA Loans In Community Property States

There are 9 community property states in the United States.

• FHA and VA Loans require non-borrowing spouses debts to be counted in community property states
• However, Conventional Loans exempts non-borrowing spouses debts to be counted by mortgage underwriters on borrowers debt to income ratios
• Married home buyers with non-borrowing spouses with high debts may need to opt to choose conforming versus FHA Mortgage Loans in community property states

Conforming Mortgage With High Student Loan Balances

High balance student loans are one of the biggest barriers for home buyers.

• Many doctors, dentists, lawyers, and educators have student loan balances north of six figures
• HUD requires 1.0% of outstanding student loan balances to be used as hypothetical monthly debt in borrowers DTI calculations
• Deferred student loans are no longer exempt
• This includes deferred student loans longer than 12 months
• IBR payments are not allowed with FHA Loans
• However, Conventional Loans allows Income-Based Repayment reporting on credit bureaus to be used

Many borrowers with higher student loan balances may need to opt with conforming versus FHA Mortgage Loans. 

Mortgage Included In Bankruptcy

Homebuyers who had a prior mortgage included in bankruptcy but the deed was not recorded until years after the bankruptcy may need to go with conforming versus FHA Mortgage.

Here are the guidelines on conforming loans with mortgage included in bankruptcy:

• Four year waiting period from discharged date of bankruptcy if the mortgage was included in bankruptcy
• Mortgage cannot be reaffirmed
• Housing event needs to be finalized but the date of the foreclosure, deed in lieu, a short sale does not matter

With FHA Loans, the following guidelines apply:

• Three year waiting period from the recorded date of housing event after the discharged date of the bankruptcy
• Discharged date of bankruptcy does not matter

To qualify for a mortgage with a national lender with no overlay on government and conforming loans, please contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com. Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.