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FHA Mortgage Loan Versus Conventional Loan Programs

FHA Mortgage Loan Versus Conventional Loan Programs

This BLOG On FHA Mortgage Loan Versus Conventional Loan Programs Was UPDATED On January 1st, 2019

There are many different types of mortgage loan programs.

Here are the types of loan programs:

  • FHA Loans
  • VA Loans
  • USDA Loans
  • Conventional Loans
  • Reverse Mortgages
  • FHA 203k Loans
  • Jumbo Mortgages
  • Non-QM Loans
  • Bank Statement Loans For Self Employed Borrowers

However, the two most popular mortgage loan programs today are FHA Loans and Conventional Loans.

Conventional Versus FHA Mortgage Loans

Conventional loans have tougher lending criteria than FHA mortgage loans. Conventional Loans are not insured and guaranteed by the government like FHA Loans, VA Loans, and USDA Loans are.

  • For example, to qualify for a conventional loan, borrowers need higher credit scores than FHA loans
  • Most conventional loans have caps on their debt to income ratios at 50%
  • Most conventional loan programs does not require that collections be paid off prior to funding the loan on primary owner occupant home financing
  • Conventional loans do allow non-occupant co-borrowers 
  • Conventional Loans does allow non-occupant co-borrowers that is not related to main borrowers by law, marriage, blood
  • One great thing about conventional loans is that if home buyers put 20% down payment, there is no mortgage insurance requirement
  • Whereas with FHA loans, mortgage insurance premium is a requirement throughout the life of the loan of a 30 year fixed rate FHA Loan
  • There are no upfront mortgage insurance premium with conventional loans
  • The private mortgage insurance premium can be substantially less than the standard 0.85% annual FHA mortgage insurance premium for borrowers with higher credit scores

Down Payment On Home Purchase

There are two different types of minimum down payment conventional mortgage loan programs.

  • The 3% minimum down payment conventional loans for first time home buyers
  • The 5% minimum down payment conventional mortgage loan program 
  • Minimum credit score requirement on conventional loans is 620
  • Conventional mortgage loans are credit score sensitive
  • The lower a borrower’s credit scores, the higher mortgage rates will be
  • The waiting period restrictions after filing bankruptcy and/or having a foreclosure is much longer for conventional loans than it is for FHA mortgage loan programs

Cases Where FHA Mortgage Loan Program Is The Only Option For Premier Credit Mortgage Loan Borrowers

Even if you have stellar credit scores and perfect credit, there are times where FHA Loans is the only option in order to get a deal done.

  • Remember that FHA loan is for those who are owner occupants and are not allowed for second homes or investment homes
  • One example where the FHA mortgage loan program is the only option is if borrowers debt to income ratios exceed the conforming conventional debt to income ratio caps of 50%
  • Most conventional loan debt to income ratios are capped at 50%
  • For FHA mortgage loan program, debt to income ratios can be capped at 56.9% by a lender who has no debt to income ratio overlays
  • The Gustan Cho Team has no lender overlays on government and conventional loans
  • If a home buyer has perfect credit but debt ratios exceed the conventional loan limit, they would have no other choice but to go with FHA Loans

Two To Four Unit Properties

Any owner occupied property up to 4 units is considered residential property.

  • Minimum down payment for a single family home for a conventional loan is 3% or 5%
  • However, any residential property of 2 units or more, the minimum down payment for a conventional loan jumps to 15% or more
  • For FHA mortgage loan program, the minimum down payment remains at 3.5% for units of 2 to 4 units
  • Although borrower might qualify for a single family home, they will not qualify for a multi-unit residential property without putting down the required 15% or more down payment
  • FHA mortgages is the only option to go in the event if the home buyer is limited with their down payment and cannot put down 15% or more
  • With FHA mortgage loan program, a 3.5% down payment will be sufficient.

FHA Lender With No Overlays

Home Buyers who have less than perfect credit or higher debt to income ratio who needs to qualify with a direct lender with no lender overlays, please contact The Gustan Cho Team at Loan Cabin at 262-716-8151 or text us for faster response.  Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends, and holidays. Borrowers can also email us at gcho@gustancho.com.

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