Mortgage Guidelines On Conventional Versus FHA Loans
This BLOG On Conventional Versus FHA Loans Was Updated On May 11, 2017
Many mortgage loan borrowers prefer to get conventional versus a FHA loans to avoid the higher FHA annual mortgage insurance premium on FHA insured mortgage loans.
- FHA mortgage loans, there is an upfront mortgage insurance premium of 1.75% plus a monthly mortgage insurance premium which is 0.85% of the FHA loan amount.
- The annual FHA MIP is paid on a monthly installment along with the mortgage payment.
- There are no upfront mortgage insurance premiums with Conventional Loans.
- There is a private mortgage insurance required on conventional loans with greater than 80% LTV.
- Premiums on private mortgage insurance on conventional loans depends on the borrower’s credit scores, the loan to value, and property type.
- FHA annual mortgage insurance premium is fixed no matter what the borrower’s credit profile is or the property type and/or LTV.
Down Payment Requirements On Conventional Versus FHA Loans
First time home buyers can qualify for Conventional Loan with 3% down payment. A first time home buyer is classified by Fannie Mae and Freddie Mac as a home buyer who did not have any ownership of an owner occupant home for the past 3 years. Otherwise, borrowers can qualify for a conventional loan with a 5% down payment. Home buyers paying less than a 20% down payment on their home purchase, private mortgage insurance will be required by the Conventional mortgage lender. Once the property meets the 80% loan to value, private mortgage insurance will no longer be required if petitioned by the homeowner. A home appraisal is normally required.
Mortgage Insurance Requirement On Conventional Versus FHA Loans
With FHA mortgage loans, mortgage insurance premiums will be required for at least five years and after five years, it can be cancelled once your loan to value is at 78%. However, there is new regulation pending where FHA will require mortgage insurance premium for the duration of the FHA mortgage loan. This means even if you pay down your mortgage to 50% loan to value, FHA will still require that you have mortgage insurance premium until the loan is paid off or you sell your house.
UPDATE ON FHA MORTGAGE INSURANCE PREMIUM
FHA now requires mandatory FHA mortgage insurance premium of 0.85% for the term of a 30 year FHA fixed rate mortgage.
Guidelines on Conventional Versus FHA Loans
Conventional loan programs have tighter lending criteria than FHA insured mortgage loans.
- On most conventional loan programs, the highest debt to income ratio that will be allowed is 45% .
- FHA insured mortgage loan, up to a 56.9% debt to income ratio back end and 46.9% DTI front end on borrowers with at least a 620 credit score.
- Borrowers under 620 FICO, maximum DTI cap is at 580 FICO.
- Mortgage rates for conventional loans are higher than FHA loans as well and is very credit score sensitive.
Credit Requirements On Conventional Versus FHA Loans
Credit Guidelines Are more strict on Conventional Versus FHA Loans.
- Minimum credit score requirements on conventional loan programs require a 620 FICO score.
- Credit Scores plays more of an important factor in determining mortgage interest rates on Conventional Versus FHA Loans.
- FHA insured mortgage loans have much lenient credit score requirements.
- Minimum credit scores required to qualify for a 3.5% down payment FHA Loan is 580 FICO
- Borrowers with under 580 FICO down to 500 FICO can qualify for FHA insured mortgage loans, however, any borrower with under 580 credit scores, 10% down payment is required.
Qualify For Mortgage With No Lender Overlays
Whether home buyers decide on a conventional loan or a FHA insured mortgage loan, there are pros and cons on both loan programs. Consult with a mortgage broker to see which program best fits your needs. Home buyers or homeowners having any mortgage case scenario questions, please contact me at 800-900-8569 or text my cell phone at 262-716-8151 for faster response or email us at firstname.lastname@example.org.
2017 UPDATE On Conventional Versus FHA Loans
Since this mortgage blog article was first written and published, there has been many updates on Conventional Versus FHA Loans.
- First, the FHA MIP has been reduced to 0.85% from 1.35%.
- Second, the 97% LTV Conventional Loan Program is back for first time home buyers.
- The 2 year waiting period after a short sale and/or deed in lieu of foreclosure to qualify for a conventional loan with a 20% down payment is no longer in existence.
- Fannie Mae and Freddie Mac discontinued this 2 year waiting period program.
- Now the waiting period after short sale and deed in lieu of foreclosure has been extended to four years after a short sale and/or deed in lieu of foreclosure, but the good news is that only a 5% down payment is needed and not the 20% down payment.